June 19, 2020
The Treasury Department released Form 3508 EZ and Instructions on June 17 allowing recipients of Paycheck Protection Program (PPP) loans, who meet certain specified criteria, to take advantage of this new simplified loan forgiveness application process. This simplified version provides some level of relief to borrowers as it does not require the use of more complicated forgiveness reduction calculations that are otherwise needed. While the application is much more simplified, borrowers are still required to retain supporting calculations and documentation for their records.
To establish whether a borrower meets the specified criteria for Form 3508 EZ, they must be able to check AT LEAST ONE of three boxes that are listed in the 3508 EZ application Instructions.
The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
Box Two (Paraphrased)
The borrower did not reduce annual salary or hourly wages of any employees (this does not include those earning more than $100,000) by more than 25 percent during the Covered Period, compared to the period between January 1, 2020 and March 31, 2020.
The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period. Borrowers are permitted to ignore some reductions in the number of employees caused by circumstances out of their control.
Box Three (Paraphrased)
The Borrower did not reduce annual salary or hourly wages of any employee (this does not include those earning more than $100,000) by more than 25 percent during the Covered Period compared to the period between January 1, 2020 and March 31, 2020.
The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 by various government agencies.
There appears to be some ambiguity as to whether state and local government agencies are included in the criteria for compliance with Box Three. Clearly some PPP borrowers had restrictions placed upon their operations due to compliance with state and local regulations.
While NSA understands that some state and local regulations are based on guidance from federal health agencies, we believe it would be helpful if the Small Business Administration removed that ambiguity. NSA intends to reach out to the SBA to request that specific industries universally affected by COVID-19, such as restaurants, hotels, and gyms, be automatically listed as having meet the 3508 EZ criteria.
The streamlined application allows borrowers to ignore reductions in employees resulting from an inability to rehire individuals who were employed on February 15, 2020, provided the borrower was unable to hire similarly qualified employees for unfilled positions by December 31, 2020. This means borrowers must wait until December 31 to submit the application. Additional clarity will be needed in this area however as Form 3508 EZ has an expiration date of October 31, 2020.
The core mission of the National Society of Accountants is to help tax and accounting professionals become more successful.
NSA presents this information for the interest of its members as a courtesy, 'as is,' without verification as to its accuracy and without the intention for it to be given or taken as legal, accounting, or tax advice.