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Churches who received Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will soon be asking if and how they will qualify for PPP loan forgiveness.

There is uncertainty over some of the program details. While you may be anxious to apply for forgiveness, here are five factors affecting the forgiveness application process.

  1. Most lenders are not ready to process forgiveness applications. Many are developing technology tools such as “forgiveness portals” or will leverage other automation options for a more efficient process. Until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issues final guidance, those technology tools can’t be finalized. The timing on when that guidance will be available is uncertain. Bank of America, as one example, is telling PPP loan holders it expects to begin opening its online loan forgiveness application process in early August and will email instructions to borrowers when it’s ready.
  2. Churches have 24 weeks to use their PPP money, leaving them more time to take steps that will help them qualify for full loan forgiveness. Churches who received their loans before June 5, 2020, can choose either eight weeks or 24 weeks for their covered period. That increased flexibility in the time to use PPP funds can be important in maximizing loan forgiveness.
  3. Churches will not be required to make any loan payments before they apply for forgiveness or until 10 months after their covered loan period ends. Since payments aren’t due yet, there is less urgency to apply for forgiveness.
  4. Applying for forgiveness may be easier than clients expect. Churches can use a simplified process through SBA Form 3508EZ if they meet at least one of these requirements:
    • They are self-employed individuals, independent contractors or sole proprietors who had no employees when they applied for their PPP loan and who didn’t include any employee salaries in calculating their average payroll amount in their application.
    • They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and — except for specified exceptions — didn’t reduce the number of employees or the average paid hours for employees between Jan. 1, 2020, and the end of their covered loan period.
    • They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and were unable to operate at the same business activity level during the loan period because of federal safety requirements or guidance related to the pandemic. CPAs expect SBA guidance to help determine how broadly this safe harbor can be used.

While waiting for final program guidance, churches can take steps to prepare for the forgiveness application process by documenting how the loan proceeds are used. Gather documentation needed to support non-payroll costs for expenses such as mortgage interest, rent or lease payments, and utilities, including account statements and other proof of payments. Lenders may not request supporting documentation for all disbursements as part of the forgiveness application; however, increased scrutiny is guaranteed for loans of $2,000,000 or more.

 

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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