Welcome to the Weintraub Resources section. Here, you can find our Blogs, Videos, and Podcasts, in which Weintraub attorneys regularly provide insights and updates on legal developments. You can also find upcoming Weintraub Events, as well as firm and client News.

PPP Second Draw Loans

In December 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the CAA).

In total, the CAA provides $900 billion in COVID relief, including $284 billion for additional Paycheck Protection Program (PPP) loans for new borrowers and “second draw” loans for existing borrowers.

The eligibility requirements for a “second draw” PPP loan (PPP2 Loan) are as follows:

1) The borrower must spend the full amount of the first PPP loan before receiving the PPP2 Loan.

2) The borrower must employ no more than 300 employees per physical location.

3) The borrower must demonstrate a 25% or more reduction in gross receipts in a quarter during calendar year 2020 compared to the same 2019 quarter.

The size of a PPP2 Loan can be up to 2.5 times the average monthly payroll costs during the 1-year period before the loan or during the 2019 calendar year. A borrower in the hospitality or food services industry (with an NAICS code beginning with 72) is eligible for a loan of up to 3.5 times average monthly payroll costs. The amount of each PPP2 Loan is subject to an overall cap of $2 million.

The Small Business Administration has not provided guidance as to how to calculate whether the business suffered a 25% or more reduction in gross receipts.

The SBA is expected to publish a new application form and guidance for PPP2 Loans.

Because the PPP2 Loan program should use much of the existing PPP framework, financial professionals believe the rollout of this new round of loans should go more smoothly compared to the initial PPP rollout last year.

COVID Relief Bill: PPP-Paid Expenses Are Deductible (Updated 12/28/2020)

This past Monday, December 21, a $900 billion pandemic relief bill came out of the U.S. House and Senate. It is called the Consolidated Appropriations Act, 2021. If President Trump signs it, it will become law. Weighing in at 5,593 pages in length, it addresses many areas, including vaccines, education, childcare, jobless benefits, energy, and national security.

Part of the bill is the COVID-Related Tax Relief Act of 2020 (COVIDTRA). One reason why COVIDTRA is getting attention is that it provides direct payments to individual taxpayers, “recovery rebates” – similar to the direct payments that went out to individuals earlier this year.

Another thing COVIDTRA does is clarify that taxpayers whose Paycheck Protection Program (PPP) loans are forgiven ARE allowed deductions for otherwise deductible expenses that were paid with PPP loan proceeds. See COVIDTRA Section 276(a)(1). This overrides the IRS’s earlier position that businesses could not claim deductions for expenses paid with PPP loan proceeds when the loan is forgiven or expected to be forgiven. COVIDTRA also clarifies the tax basis and other attributes of the PPP borrower’s assets will not be reduced as a result of PPP loan forgiveness.

When a PPP loan is forgiven, the borrower does not need to include the amount of the forgiven PPP loan in taxable income. That is a great benefit for the borrower. Now, under COVIDTRA, the ability for taxpayers to deduct expenses paid with forgiven PPP loan money further amplifies the benefits of the PPP loan.

For example, think about a partnership that gets a $100 PPP loan. The partnership spends the $100 on PPP-specific expenses (payroll, rent, etc.), and then has the PPP loan forgiven. The partnership does not pay any federal income tax on the $100. Also, according to COVIDTRA, the partnership can reduce its taxable income by $100 by deducting the $100 that it spent on the PPP-specific expenses. If the owners of the partnership are all taxed at a rate of 37% on ordinary income passed through from the partnership, $100 of PPP money (received tax free) also saves them $37 in taxes.

If it becomes law, this will be a significant tax benefit for many businesses.

On Tuesday, December 22, President Trump threatened not to sign the bill, pressing for higher direct payments and changes to various provisions.  However, on Sunday, December 27, he signed the bill as passed by Congress.

If you have further questions, please contact:

Jim Clarke – 916.558.6084

Business Focus Seminar 2020 – Helping Your Business Survive & Thrive Through COVID-19

  • When: Oct 28, 2020
  • Where: Virtual Event

A video archive for this event is available at this link: https://bit.ly/BusinessFocus2020

On October 28, 2020, Weintraub Tobin partnered with BFBA, Chase Bank, and CVF Capital Partners to present Business Focus 2020: Helping your Business Survive and Thrive Through COVID-19.  The virtual and interactive event addressed the “new normal” business landscape brought about by the economic and social changes of the COVID-19 pandemic.

Business Focus 2020 featured a panel of professional advisors who have assisted small- and medium-sized businesses through the unprecedented challenges presented by the pandemic, followed by a panel of owner-CEOs who shared their experiences navigating 2020’s business disruptions.  Both panels were moderated by Scott Syphax.

The video archive is organized by chapters, so you can choose to watch any aspect of the event on its own.

Advisor Panelists were Weintraub attorney Chris Chediak (Shareholder), Ben Brown  (Managing Partner) with BFBA, Erik Langeland (Market President) with Chase Bank, and Ed McNulty (Managing Partner) with CVF Capital Partners.

CEO Panelists were Tony Powe (Interim CEO & Board Chair) with Cool Mountain Transport, Haru Sakata (CEO) with Mikuni Restaurant Group, Pete Engelken (Chief Operating Officer) with Allworth Financial, and Jason Johnson (CEO & Founder) with Quick Quack Car Wash.

Click here to view the event flyer.

Please keep in mind that the COVID-19 pandemic is a fluid situation and information is constantly being updated. We recommend that you check with your professional advisors to make sure you have the most current information.

WEBINAR: Main Street Lending Program

  • When: Jun 30, 2020
  • Where: Webinar

What is the Main Street Lending program, and how is it different than the PPP and other business loans?

On June 30, 2020, Justin Borrowdale and Dan Franklin of River City Bank discussed the Main Street program – what businesses are eligible, unique program features, and documentation needed.

• Program Overview
• Borrower Eligibility
• Loan Terms and Documentation
• Borrower certifications, covenants, and restrictions

A recording of this webinar can be viewed on the Weintraub Tobin YouTube page. Please keep in mind that the COVID-19 pandemic is a fluid situation and information is constantly being updated. We recommend that you check with your professional advisors to make sure you have the most current information.

Opportunity Zone Funds and Investors Get Relief in Light of COVID-19

On June 4, 2020, the Internal Revenue Service published Notice 2020-39 (Notice) which provides relief to qualified opportunity funds (QOFs) and their investors in light of the COVID-19 pandemic.  Here is a summary, and more details follow below:

  • Investors who otherwise would be required to reinvest capital gains into a QOF any time this year on or after April 1 now have until December 31, 2020 to reinvest such gains.
  • A QOF’s failure to hold at least 90% of its assets in “QOZ property” on any semi-annual testing date from April 1, 2020 through December 31, 2020 will not cause the entity to fail to qualify as a QOF.
  • Qualified Opportunity Zone Businesses taking advantage of the working capital safe harbor can add an additional 24 months to their working capital safe harbor period.
  • The period between April 1, 2020 and December 31, 2020 is disregarded for purposes of the 30-month “substantial improvement” period.
  • QOFs that received proceeds from the disposition of QOZ property have up to 12 additional months to reinvest those proceeds in QOZ property.
  1. Overview of Opportunity Zones. Congress created opportunity zones in 2017 to encourage investments in economically distressed communities.

The Opportunity Zone program provides taxpayers the opportunity to defer gain on the sale or exchange of an asset if the gain is reinvested in a Qualified Opportunity Zone Fund (a “QOF”) within 180 days. Note that the entire proceeds from an asset sale need not be invested in a QOF; rather, only the portion of the proceeds that represent gain must be invested in a QOF. The gain is deferred until the sooner of (i) the date the taxpayer sells its investment in the QOF or (ii) December 31, 2026. If the taxpayer invests in the QOF in 2020 or 2021, the amount of gain that will ultimately be recognized is reduced by 10%.

Additionally, if the taxpayer holds its QOF interest for 10 years, the taxpayer will recognize no taxable gain when they sell that investment. In order to be a QOF, an entity must be organized for the purpose of investing in QOZ Property and 90% or more of its total assets must be QOZ Property.  QOZ Property includes both new and substantially improved tangible property, including commercial real estate (e.g., offices buildings, apartment complexes, etc.) and equipment located in qualified opportunity zones. These investments can be direct or through subsidiary corporations or partnerships that operate businesses in qualified opportunity zones. Each U.S. state has its own qualified opportunity zones.

  1. Relief regarding 180-day investment requirement for QOF investors.


If a taxpayer has gain from the sale or exchange of property with an unrelated person, the taxpayer can elect to exclude from gross income the amount of such gain that the taxpayer invests in a QOF during the 180-day period following the date of such sale or exchange (“180-day investment requirement”).


The Notice states that if a taxpayer’s 180th day to invest in a QOF falls on or after April 1, 2020, and before December 31, 2020, the taxpayer now has until December 31, 2020 to invest the gain in a QOF.

III. Relief regarding 90% investment standard for QOFs.


For an investment vehicle to qualify as a QOF, it must be corporation or a partnership organized for the purpose of investing in QOZ property (other than another QOF).  The QOF must satisfy the 90% investment standard, meaning it must hold at least 90% of its assets in QOZ property, determined by the average of the percentage of QOZ property held by the QOF measured semi-annually on (i) on the last day of the first 6-month period of the QOF’s tax year (June 30 for calendar year taxpayers), and (ii) on the last day of the QOF’s tax year.

If the average of the percentages of the QOZ property held by a QOF on the semi-annual testing dates fails to meet the 90% investment standard, the QOF must pay a penalty for each month that the QOF fails to meet the standard. However, no such penalty is imposed “with respect to any failure if it is shown that such failure is due to reasonable cause.”


The Notice provides relief by stating that, in the case of a QOF whose (i) last day of the first 6-month period of the tax year or (ii) last day of the tax year falls within the period beginning on April 1, 2020, and ending on December 31, 2020, any failure by that QOF to satisfy the 90% investment standard for that tax year is disregarded for purposes of determining whether the QOF meets the 90% investment standard rules. This prevents QOFs from being held liable for the statutory penalty.

  1. Relief regarding working capital safe harbor for QOZ businesses.


An entity must meet certain requirements to be a “QOZ business,” including the requirement that less than 5% of the average of the aggregate unadjusted bases of the entity’s property be attributable to “nonqualified financial property” (as defined in the Internal Revenue Code — essentially cash and cash equivalents). However, if the QOF satisfies the “working capital safe harbor”, the QOF may hold an unlimited percentage of its assets in cash and short-term instruments.

One of the safe harbor requirements is that the business keep a written schedule consistent with the ordinary start-up of a trade or business for the expenditure of the working capital assets within 31 months of the receipt by the business of the assets. A QOZ business can extend the working capital safe harbor period to a maximum of 62 months. If a QOZ business is located in a QOZ within a presidentially declared disaster area, then the QOZ business may receive an additional 24 months to expend its working capital assets.


The Notice provides relief by stating that, as a result of the emergency declaration by President Trump on March 13, 2020 regarding COVID-19, all QOZ businesses covered by the working capital safe harbor before December 31, 2020 now will receive up to 24 additional months to expend the working capital assets of the QOZ business (i.e., the QOZ business now has up to 86 months to expend working capital).

  1. Relief regarding 30-month substantial improvement period for QOFs.


QOZ Property includes tangible property acquired after 2017 if (i) the entity puts the property to its original use in the QOZ (“original use requirement”), or (ii) the property is substantially improved (“substantial improvement requirement”).

The substantial improvement requirement is met only if, during any 30-month period beginning after the date of acquisition, there are “additions to basis with respect to such property” that, in the aggregate, exceed the adjusted basis of that property as of the beginning of that 30-month period (“30-month substantial improvement period”).


The Notice provides relief by stating that, for purposes of the substantial improvement requirement, the period beginning on April 1, 2020 and ending on December 31, 2020 is disregarded in determining any 30-month substantial improvement period.

  1. Relief regarding 12-month reinvestment period for QOFs.


If a QOF sells or disposes of some or all of its QOZ property or if a distribution with respect to the QOF’s QOZ stock is treated as a return of capital, and if the QOF reinvests some or all of the proceeds in QOZ property by the last day of the 12-month period beginning on the date of the distribution, sale, or disposition, then the reinvested proceeds are treated as QOZ property for purposes of the 90% investment standard.

To qualify for such treatment, the QOF needs to hold such proceeds continuously in cash, cash equivalents, or debt instruments with a term of 18 months or less. If the QOF’s plan to reinvest some or all of such proceeds in QOZ property is delayed due to a presidentially declared disaster, then the QOF may receive up to an additional 12 months to reinvest the proceeds, provided that the QOF invests the proceeds in the manner originally intended before the disaster.


The Notice provides relief by stating that if any QOF’s 12-month reinvestment period includes January 20, 2020, then that QOF receives up to an additional 12 months to reinvest the proceeds in QOZ property.

Paycheck Protection Program Flexibility Act of 2020

On June 5, 2020, President Trump signed into law H.R. 7010 – the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”). The PPPFA makes significant borrower favorable amendments to the Paycheck Protection Program (“PPP”).


As our readers know, the PPP loan program was enacted pursuant to the CARES Act as a tool to help small businesses keep employees on their payroll. The draw of the program is the ability for borrowers to have the loans forgiven. In other words, the loans can be essentially converted into tax-free grants. One caveat is that borrowers are permitted to spend PPP loan proceeds on very limited types of expenditures. PPP loans may only be spent on payroll, rent, utilities and interest on certain pre-existing obligations.

In order to obtain loan forgiveness additional conditions must be satisfied. The CARES Act permitted loan forgiveness only to the extent the loan proceeds were spent during an eight-week period following loan origination (the “Covered Period”). The Small Business Administration (“SBA”) added a requirement that payroll expenses constitute at least 75% of Covered Period expenditures to achieve full loan forgiveness. Moreover, subject to one large exception, a portion of loan forgiveness will be lost for borrowers who reduce the number of full-time equivalents on their payroll OR reduce the average hourly wage or annual salary of an employee by more than 25%. The aforementioned exception to loan forgiveness reduction applies (in its original form) where (i) reductions in full-time equivalents or average hourly wages and salaries took place between February 15 and April 26, 2020 and (ii) the number of full-time equivalents and compensation are restored by June 30, 2020.

PPP Flexibility Act Changes.

Longer Covered Period, Reduced Payroll Costs Requirement. The most significant changes are an increase in the Covered Period to 24 weeks from 8 weeks; and the replacement of the 75% payroll expenditure requirement with a reduced 60% payroll expenditure requirement. In other words, borrowers now have 24 weeks to spend their PPP loan proceeds and can spend up to 40% of the loan amount on rent, utilities and interest on pre-existing debts without forfeiting any loan forgiveness.

Borrowers with existing PPP loans can choose to stick with the original 8-week Covered Period.  Such borrowers will be obligated to maintain payroll levels only through their original 8-week Covered Period in order to qualify for maximum loan forgiveness (or qualify under the Restoration Rule described below). On the other hand, borrowers using the new expanded 24-week covered period will need to maintain payroll levels for the full 24 weeks in order to avoid reductions in their forgivable loan amounts (or qualify under the Restoration Rule).

Restoration Rule.  As noted above, a reduction in payroll levels during the Covered Period would result in a reduction in the amount of the PPP loan forgiven unless the payroll levels were restored by June 30, 2020.  The PPPFA replaces the June 30, 2020 date with December 31, 2020.  Accordingly, if the borrower cuts the number of full-time equivalents or the salary or wages of its employees between February 15, 2020 and April 26, 2020, those reductions will not result in a loss of loan forgiveness if those cuts are restored by December 31, 2020.

Maturity.  After enactment of the PPPFA, PPP loans with any unforgiven loan amounts will have a minimum maturity of 5 years (previously 2 years).  The PPPFA states that lenders and borrowers will not be prohibited from mutually agreeing to modify the maturity of pre-PPPFA PPP loans to conform to the new 5-year minimum maturity date provided by the PPPFA.

Loan Payment Deferral.  The PPPFA extends the loan payment deferral period.  Originally, borrowers were not required to make any loan payments for six months.  Now PPP loan repayment will be deferred until the date on which the SBA remits the loan forgiveness amount to the lender.  PPP loan recipients who do not apply for forgiveness will not be required to make loan payments until 10 months following the close of the Covered Period.

Rehiring, Employee Availability. Additionally, the borrower will not suffer a reduction of its loan forgiveness amount due to reductions in the number of full-time equivalent employees IF the borrower is able to document EITHER:

(A) The borrower was both unable to rehire individuals who were employees on February 15, 2020 AND unable to hire similarly qualified employees on or before December 31, 2020;


(B) The borrower was unable to return to the same level of business activity as of February 15, 2020 due to compliance with requirements or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

Payroll Tax Deferral. PPP borrowers are now permitted to delay paying the employer’s share of 2020 payroll taxes.  One-half of the employer’s share of payroll taxes are now due December 31, 2021 and remaining half will be due December 31, 2022. PPP borrowers can now enjoy this deferral even if they have their PPP loan forgiven. Previously, PPP borrowers were denied this benefit once their loans were forgiven.

The new PPPFA changes will benefit some PPP borrowers more than others. The SBA and Treasury Department will likely provide additional guidance soon.

SBA Releases PPP Loan Forgiveness Application (UPDATED*)

On Friday May 15, 2020, the Small Business Administration (“SBA”) released the application borrowers will use to request forgiveness of their Paycheck Protection Program (“PPP”) loans.  On Friday May 22, 2020, the SBA and Treasury jointly issued an Interim Final Rule clarifying some portions of the forgiveness application.  PPP borrowers have been awaiting additional guidance regarding the forgiveness portion of the program for well over a month.  While the application and interim final provides some additional guidance, many questions remain.


As our readers already know, the PPP loan program was enacted pursuant to the CARES Act as a tool to help small businesses keep employees on their payroll.  The draw of the program is the ability for borrowers to have the loans forgiven.  In other words, the loans can be essentially converted into tax-free grants.  One caveat is that borrowers are permitted to spend PPP loan proceeds on very limited types of expenditures.  PPP loans must be spent only on payroll, rent, utilities and interest on certain pre-existing obligations during an eight-week period following loan origination.

SBA had previously required that borrowers certify that 75% of their PPP loans would be expended on payroll.  Moreover, subject to one large exception, a portion of loan forgiveness will be lost for borrowers who reduce the number of full-time equivalents on their payroll OR reduce the average hourly wage or annual salary of an employee by more than 25%.  The aforementioned exception to loan forgiveness applies where (i) reductions in full-time equivalents or average hourly wages and salaries took place between February 15 and April 26, 2020 and (ii) the number of full-time equivalents and compensation are restored by June 30, 2020 (the “June 30 Restoration Exception”)


As noted above, many questions remain unanswered but the application does provide clarification of certain issues, including the following.

Eight Week Testing Period / Covered Period

In order to qualify for forgiveness, amounts must be spent during the eight-week period commencing upon the date the loan proceeds are disbursed to the borrower (the “Covered Period”).  For administrative convenience, borrowers who pay employees at least as often as biweekly may elect to calculate eligible payroll costs using the eight-week period that begins on the first day of their first pay period following the loan disbursement date (the “Alternative Payroll Covered Period”).  Note that this alternative eight-week period only applies to payroll costs and not to other qualifying expenditures.

Expenses Paid or Incurred

One question that tormented borrowers was whether eligible costs had to be paid and incurred during the Covered Period or whether they could be incurred and/or paid during the period.  With respect to payroll costs, the application provides:

Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).

Similarly, with respect to eligible non-payroll costs, the application provides:

An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

However, the May 22 Interim Final Rule clarifies that pre-payments of interest are not eligible for forgiveness.  Accordingly, it appears that any eligible payroll or non-payroll costs (other than prepayments of interest) paid during the Covered Period count towards loan forgiveness despite when the cost was incurred.  Additionally, costs incurred during the Covered Period and paid in accordance with the usual schedule for payment can also be forgiven even if the payment date falls after the conclusion of the Covered Period.

Calculating Full-Time Equivalents

Recall that a reduction in full-time equivalents (“FTEs”) during the Covered Period will result in a proportionate reduction in loan forgiveness.  The application permits borrowers to calculate the number of FTEs in one of two manners.  The first way to calculate FTEs is to determine the average number of hours worked by each employee per week during the Covered Period and divide that number by 40.  The resulting quotient is rounded to the nearest 1/10th and capped at 1.0.  Alternatively, borrowers can count all employees who average 40 or more hours per week as 1.0 and each employee working less than 40 hours as 0.5.  Once the borrower has calculated each employee’s FTE status, the results are aggregated.

The average number of FTEs during the Covered Period is then compared against the number of FTEs during one of the following periods (at the Borrower’s election): (i) February 15, 2019 to June 30, 2019; (ii) January 1, 2020 to February 29, 2020; or (iii) in the case of seasonal employers, a consecutive twelve-week period between May 1, 2019 and September 15, 2019.  The number of FTEs for the Covered Period and the number of FTEs during the reference period chosen by the borrower must be calculated using the same methodology.

Additionally, any FTE reductions resulting from one of the following reasons will not impact loan forgiveness: (i) employees who were terminated prior to April 26, 2020 and who rejected a good-faith, written offer of rehire during the Covered Period (the employee’s rejection of the offer to rehire must be reported to state unemployment insurance offices); and (ii) any employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.

Calculating Salary and Wage Reductions

As noted above, borrowers who reduce their employees’ salaries by more than 25% will suffer a loss in the amount of loan forgiveness.  This calculation is made on a per employee basis.  Meaning, each employee’s compensation during the Covered Period is measured against that employee’s compensation from January 1, 2020 to March 31, 2020.

It is unclear how this rule would apply if the borrower terminated a number of employees and rehired lower wage workers.

June 30 Restoration Exception

Any reductions in FTEs or compensation that are restored on or before June 30, 2020 will not result in a reduction of loan forgiveness.  The application does not specify how this rule operates.  For example, for how long do employees need to be rehired?  How does one test FTEs on June 30, 2020?  Is it a one-day test or do we test based upon a payroll period ending or starting on June 30, 2020?

Owner Compensation

Pursuant to prior SBA guidance, compensation payable to owners is limited to 8/52 weeks of 2019 net profits.  Additionally, healthcare expenses and retirement contributions attributable to self-employed individuals, general partners and other Schedule C filers are not eligible for forgiveness.  It appears that health and retirement contributions made on behalf of shareholder-employees are eligible for forgiveness.

The application requires a certification that the amount for which forgiveness is requested “does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,384 per individual.”  Accordingly, it appears that borrowers cannot receive full loan forgiveness if they use PPP funds to increase compensation to owner-employees, including corporate shareholder-employees.

Loan Forgiveness Process

In order to receive loan forgiveness, borrowers must submit the PPP loan forgiveness application linked in the introductory paragraph above to its lender.  Within 60 days of receiving the application, the lender must issue a decision to SBA regarding loan forgiveness.  Within 90 days of receiving the lender’s decision and subject to the SBA’s additional review of the original loan and/or forgiveness application, the SBA will remit payment of the appropriate forgiveness amount to the lender together with accrued interest on such amount.  Accordingly, it can take up to 150 days to receive final notification of loan forgiveness.


While these new rules do provide some additional guidance, the answers to many important questions (particularly with regard to the June 30 Restoration Exception) still remain unclear.

Some practitioners expect that SBA will promulgate further guidance concerning PPP loan forgiveness.  However, it is unlikely that such guidance will be issued soon enough to be helpful for borrowers who have already received loans.  Additionally, there are many proposals being discussed in Congress to amend the Paycheck Protection Program.  We will be sure to provide additional updates in the event additional guidance is issued or amendments are enacted.

*This alert was initially published on May 18, 2020 following the release of the PPP loan forgiveness application and has been updated to include certain clarifications provided by the May 22, 2020 Interim Final Rule.

NOTE: This article has been updated from the original publication on May 18, 2020 to reflect new information provided by the SBA on May 22, 2020.

Further SBA Guidance on Necessity Certification for PPP Loans

Small Business Administration (SBA) guidance published on May 13, 2020 adds clarity to the “necessity” certification that borrowers were required to make when applying for Paycheck Protection Program (PPP) loans.  According to this guidance, borrowers that received PPP loans of less than $2 million will be deemed to have made the necessity certification in good faith.  As to borrowers with loans greater than $2 million, if the SBA notifies the borrower that the SBA has determined that the borrower lacked an adequate basis for the necessity certification, the borrower will be able to avoid enforcement action by repaying the loan.


Every PPP loan application requires that the borrower certify that current “economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  In April 2020, Treasury Secretary Steven Mnuchin and the SBA announced that the SBA would audit select PPP loans, including all loans in excess of $2 million.  These audits will include an examination of whether the aforementioned necessity certification was made in good faith.  Our previous post on this topic is available here.

SBA Guidance

Borrowers are likely to find the following two portions of the May 13 guidance especially significant:

Safe harbor for <$2 million borrowers: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

Notice-and-cure opportunity for other borrowers: “SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”

Our Observations

As the necessity certification is rather subjective, many PPP borrowers were rightfully concerned over potential second-guessing by the SBA.  Borrowers with loans of less than $2 million should take comfort in this new guidance.  PPP borrowers with loans of $2 million or more can avoid enforcement actions by repaying loans in the event of an audit.  However, because the funds will likely be spent prior to an audit, larger borrowers must still consider the prospect of a review of whether the loans were “necessary” and factor that into their spending plans.  These borrowers would also be well advised to document their company’s need for liquidity and the impact of Covid-19 on their industries in general.  As a final note, borrowers should be advised that the May 13 SBA guidance does not bind other federal agencies.

Guess What? The Laws HAVE Changed – Avoiding a Conduit Trust Catastrophe after the SECURE Act

Like most estate planners, we always remind clients that tax and estate planning laws are subject to change and frequently do. As busy practitioners, it is impossible for us to reach out to every client when a change might affect him or her, so we remind all clients to come back to see us if they have questions or are concerned about how recent developments affect their plans (and in any event, at least every three to five years).

January 1, 2020 saw one such key change in the law—the implementation of the SECURE Act. The “Setting Every Community Up for Retirement Enhancement” Act made a number of changes to federal retirement program regulations, such as repealing the maximum age at which one can contribute to a traditional IRA and raising the required minimum distribution age from 70 ½ to 72. From an estate planning perspective, however, the biggest change was the partial elimination of what is often called “stretch” treatment for IRAs.

Before the SECURE Act, a person who inherited an IRA could base his or her annual distributions on his or her life expectancy. This allowed for continued tax-free growth and smaller annual distributions, reducing the likelihood of an IRA distribution raising one’s income tax bracket or a person outliving his or her inherited IRA. The SECURE Act eliminated this “stretch” treatment for all but four categories of beneficiaries. Spouses, individuals not more than 10 years younger than the plan owner, chronically ill or disabled individuals, and minor children of the plan participant are now the only beneficiaries allowed to use their life expectancies to determine their annual distributions.

In general, everyone else must distribute their entire inherited IRA over a period of 10 years, although they have complete flexibility to choose when to take distributions within the 10-year period. This change does not allow the IRA to function as an income stream for life, as many IRA owners would want for their successor beneficiaries; and if the IRA is large, this could move a beneficiary into a higher income tax bracket.

So, that’s the law, like it or not (and many do not like the new options). Many people have named their trusts as beneficiaries of their IRAs so that the trustee can elect lifetime treatment on behalf of beneficiaries. Before the SECURE Act, if the trust was drafted accordingly, it would function as what is commonly referred to as a “conduit” trust payable over the beneficiary’s life expectancy. Distributions would be immediately passed out to the beneficiary and taxed as income to the beneficiary (not the trust). This allowed trustors to know that a certain beneficiary would receive a certain benefit for life and avoided the IRA distribution being taxed as income to the trust (trusts often pay the highest rate of federal income tax). Relying on a conduit trust was preferable to naming the beneficiary directly on the IRA because in the latter case the beneficiary could choose to take a lump sum distribution, possibly contravening the decedent’s intent. Now, except for the four categories named above, relying on a conduit trust approach for a beneficiary’s lifetime stretch of an IRA is no longer an option.

For some, this will not be a catastrophe. It eliminates some attractive options, to be sure, but utilizing the conduit trust still allows a stretch of the retirement assets to the beneficiary over ten years (as opposed to the beneficiary taking a lump sum distribution, for example). However, some estate plans are specifically designed to hold retirement assets in trust because an individual beneficiary has serious health or addiction issues that would be significantly worsened if the person received a large sum of money. Other people know a beneficiary of theirs will never be able to support himself or herself or manage his or her own accounts, so they’ve set up what they believe is a lifelong trust to accomplish this on the beneficiary’s behalf. In these situations, having a conduit trust in one’s plan might result in what previously was expected to be a lifetime gift being paid over ten years instead. This really could be a catastrophe.

Fortunately, there are options. A different type of retirement trust called an “accumulation” trust can still hold IRA benefits for the life of a beneficiary, although there are generally less desirable tax consequences. What is right for your plan will depend on your unique situation, so if you have any concerns at all, you should reach out to your attorney for specific advice. The ramifications of the SECURE Act are complicated, and this post has merely highlighted one potential issue. An estate planning attorney, working in tandem with your CPA and/or financial advisor, will be able to help you maximize your retirement plan assets given the current law.

SBA Guidance on Borrower Certification for PPP Loans (Updated)

If your business received a Paycheck Protection Program (PPP) loan, now may be a good time to look at the new guidance from the Small Business Administration (SBA) to see whether the business should consider returning the money if the business did not really “need” it.  If, after considering the guidance, the business determines it does indeed need the loan, the business should ensure it has documentation demonstrating such need.


On April 24, 2020, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act.  This refilled the PPP with $320 billion.  The PPP is a forgivable loan program for “small” businesses.  The Small Business Administration (SBA) administers the PPP.  Earlier in April, a deluge of applications exhausted the PPP’s initial pool of $349 billion.

PPP loan applicants are required to certify that current “economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Civil and criminal penalties attach to such certifications if they are not accurate.  Many PPP loan applicants were therefore concerned about making such “necessity” certification.  The SBA has published PPP Frequently Asked Questions, which it is updating on a regular basis.  FAQ 31 addresses the “necessity” certification.  FAQ 39, following up on public comments by Treasury Secretary Steven Mnuchin, states that the SBA “will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.”

SBA Guidance

FAQ 31, published on April 23, provides guidance from the SBA regarding the “necessity” certification.

One of the most important things to take away from this guidance is that existing PPP borrowers that made the certification before FAQ 31 became available will be deemed to have made the necessity certification in good faith IF the borrower repays the PPP loan in full by May 18, 2020.*  In other words, if your business borrowed money under the PPP and you now determine in light of the new guidance that the “necessity” certification was questionable, the business can protect itself by paying back the loan before May 18.

How can a borrower determine whether it can make the “necessity” certification in good faith?  FAQ 31 essentially tells borrowers to ask themselves whether, in light of “their current business activity and their ability to access other sources of liquidity,” they can access enough liquidity “to support their ongoing operations in a manner that is not significantly detrimental to the business.”  FAQ 31 says that, for example, “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”  The preceding example does two things: (1) puts public companies on notice that they will be subject to scrutiny (for example, Shake Shack, which said it will return its PPP loan), and (2) highlights that documentation will be important in a borrower’s ability to justify its “necessity” certification.


FAQ 31 raises questions that are difficult for borrowers to answer without further clarification from the SBA or other authorities.  Exactly how much pain would a borrower need to sustain from getting non-PPP funding before it reaches the “significantly detrimental” threshold that justifies a PPP loan?  There is no bright-line or one-size-fits-all answer.

If a PPP borrower did not consider alternative sources of liquidity when submitting their PPP application, the borrower should now do so.  If funding is available from sources other than the PPP in a manner that is not significantly detrimental to the business, the business should consider returning all PPP loan proceeds before May 18 to avoid facing penalties based on an inaccurate “necessity” certification.  If the borrower concludes that the PPP loan was necessary, the borrower should have documentation supporting the business’s reasonable determination that accessing funding from such alternative sources would be significantly detrimental to the business.

Please note

*In FAQ 47, published May 13, 2020, the SBA stated that this deadline was being extended from May 14, 2020 (which was an extension of the original May 7 deadline) to May 18, 2020. The original post of this article contained the May 7 date.