AICPA makes PPP loan forgiveness recommendations

By Jeff Drew

The AICPA on Wednesday issued a series of recommendations it would like to see the U.S. Small Business Administration (SBA) adopt and issue as guidance for small businesses to use in calculating loan forgiveness under the Paycheck Protection Program (PPP).

In the release, the AICPA urges that:

  • The eight-week covered period under PPP should align with the beginning of a pay period, not the date loan proceeds are received.
  • The eight-week period should be flexible, with businesses able to choose to commence it once stay-at-home restrictions are lifted instead of when loan proceeds are received.
  • Full-time equivalents (FTEs) should be calculated using a simple wage-based proxy when hours worked are not tracked by the employer (e.g., for salaried workers or those paid by piece).
  • Payroll reduction calculations should be based on an employee’s average payroll per week in the eight-week period compared to the prior quarter, rather than comparing total compensation in the periods. Loan forgiveness is reduced if an employee’s compensation decreases by more than 25% but an eight-week period will naturally have 33% less payroll than a 12-week quarter.

The AICPA also addressed the eight-week loan forgiveness period in a letter sent late Tuesday to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. In the letter, signed by AICPA President and CEO Barry Melancon, CPA, CGMA, the AICPA lays out the case for changing the current interpretation for when to start the eight-week period for the forgiveness calculation component of the program.

Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities. PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. However, the amount of loan forgiveness will be reduced if less than 75% of the funds are spent on payroll over an eight-week loan forgiveness period.

Current guidance from Treasury and the SBA interprets the eight-week period as beginning on the date the lender makes the disbursement of the PPP loan to the borrower. However, the AICPA says, with many states still shut down by government order, most small businesses are unable to bring their employees back to work. For those businesses, starting the loan forgiveness clock on the date the lender disburses the funds means the recipient business must either pay employees while it is unable to operate or forgo the maximum amount of loan forgiveness. Flexibility in the start dates of the eight-week period would position more small businesses to survive and contribute to an economic rebound while working within the parameters of the CARES Act and subsequent guidance.

To address this problem, the AICPA letter urges Treasury to “[i]mmediately take a very simple but critical step and define the origination date as the date on which a state’s shelter-in-place order is lifted and businesses are authorized by government to return to full operations. This will provide the necessary flexibility for the 8-week clock to start, businesses to bring back employees and to pay sufficient payroll to meet the 75% requirement.”

Recommendations provided

The AICPA has received numerous questions from CPAs about the loan forgiveness portion of the PPP. Many of those inquiries have sought answers on the documents and calculations that should be used in applying for loan forgiveness to be awarded.

In response, the AICPA has developed recommendations for applying for loan forgiveness that have been added to earlier recommendations on how to apply for PPP loans. The full list of recommendations is available on the AICPA’s website.

The AICPA said in the release that it has requested further clarification on how reductions in forgiveness are to be applied. Specifically, the AICPA is seeking clarity regarding how reductions in forgiveness are to be applied and whether the CARES Act lists forgiveness reductions in the intended order of application, as some of the forgiveness requirements cause a dollar reduction while others produce a percentage reduction. The order in which these are applied can have a significant impact on the forgiveness amount.

The AICPA’s recommendations were made in consultation with an AICPA-led small business funding coalition, CPA firms, and other key stakeholders. They build on previous guidelines the AICPA has provided to help bring clarity to the implementation of the PPP.

The PPP so far

Congress established the PPP through the CARES Act, which was signed into law on March 27. The program is available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans, according to the SBA and Treasury.

SBA lenders were flooded with PPP applications from businesses in need of resources to help their businesses as the coronavirus pandemic and the consequences from social-distancing requirements devastated the economy. By April 16, the SBA had stopped accepting applications for the PPP after exhausting the initial $349 billion in funding. Last week, Congress approved an additional $370 billion in funding for small businesses, with $310 billion in fresh funds provided to the PPP. The application window for the second round of PPP funding opened Monday.  

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

Jeff Drew ( is a JofA senior editor.

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