Treasury Reaffirmed “Per Se Rule,” but Imposed New Limits on How it Applies to Public Safety and Public Health Departments

2 minute read

Carrington Coleman previously dubbed the rule that allowed CRF funds to be used for payroll costs of public safety and public health workers as the “Per Se Rule.” Because these payroll costs are legally presumed to be substantially dedicated to COVID-19, these costs are “per se” eligible expenditures. (Link to Client Alert released on Sept. 1.)

On September 2, Treasury reaffirmed the validity of the Per Se Rule but limited its scope. Although generally broad in scope, the per se rule now does not necessarily include all employees working in the public safety and public health departments.

The Majority of Public Safety Employees Should Be Covered by the Per Se Rule

The majority of public safety employees should be covered by the Per Se Rule. But, according to Treasury’s most recent guidance, not every employee in the public safety department is necessarily within the scope of the rule.

Treasury limited the scope to frontline workers and extended it to include others who directly support those workers. Employees who are only indirectly engaged in public safety are not eligible. Treasury failed to define the term “directly.” Without proper guidance, counties and cities will have difficulty knowing whether some employees meet this standard. Further clarification and guidance from the Treasury is needed.

Treasury provided a list of frontline workers, specifically identifying and including police officers, sheriffs, duty sheriffs, firefighters, emergency medical responders, correctional and detention officers, and identified dispatchers and supervisory personnel as directly supporting workers.

Most Public Health Employees Should Be Covered by the Per Se Rule

Most, but not all, public health employees should be covered by the Per Se Rule. However, according to Treasury’s recent guidance, some employees in the public health department may be excluded.

Eligible payroll costs include employees involved in providing medical and other health services to patients, and supervisory personnel, including medical staff assigned to schools, prisons, and other such institutions, and other support services essential for patient care.

In addition, employees of public health departments directly engaged in matters related to public health and related supervisory personnel are covered by the Per Se Rule. But employees who are indirectly engaged in public health matters are not eligible.

Uncertainty and Increased Administrative Burden

Treasury’s new guidelines essentially subjects these workers who indirectly support frontline workers to the same factual and legal scrutiny as other types of employees who are subject to “substantially different use” standard.

The new guidelines create another hurdle for CRF recipients, i.e., a determination of whether certain employees are directly or indirectly related to frontline workers.

This new limitation is inconsistent with Treasury’s policy of administrative accommodation. Further clarification by Treasury is required. It is unfair for Treasury to now limit the scope of the Per Se Rule six months into the ten-month covered period.

Unfortunately, the impact of this rule may keep some counties and cities from properly including all of their public health workers because of (1) the factual and legal uncertainty over whether a particular employee “directly” supports its frontline workers and/or (2) their lack of resources to perform a proper analysis and create the additional documentation needed.

Takeaways

  • Treasury’s guidance reaffirms that CRF funds may be used to pay for public safety and public health payroll costs.
  • However, Treasury’s guidance limited the scope of which public safety and public health payroll costs qualify as per se eligible.
  • Treasury’s limitation should not create substantial economic hardships, but unfortunately, it will create increase administrative burdens.

Treasury Reaffirmed“Per Se Rule,” But Imposed New Limits On How It Applies To Public Safety And Public Health Departments.

3 minute read

Carrington Coleman previously dubbed the rule that allowed CRF funds to be used for payroll costs of public safety and public health workers as the “Per Se Rule.” Because these payroll costs are legally presumed to be substantially dedicated to COVID-19, these costs are “per se” eligible expenditures. (Link to Client Alert released on Sept. 1.)

On September 2, Treasury reaffirmed the validity of the Per Se Rule but limited its scope. Although generally broad in scope, the per se rule now does not necessarily include all employees working in the public safety and public health departments.

The Majority of Public Safety Employees Should Be Covered by the Per Se Rule

The majority of public safety employees should be covered by the Per Se Rule. But, according to Treasury’s most recent guidance, not every employee in the public safety department is necessarily within the scope of the rule.

Treasury limited the scope to frontline workers and extended it to include others who directly support those workers. Employees who are only indirectly engaged in public safety are not eligible. Treasury failed to define the term “directly.” Without proper guidance, counties and cities will have difficulty knowing whether some employees meet this standard. Further clarification and guidance from the Treasury is needed.

Treasury provided a list of frontline workers, specifically identifying and including police officers, sheriffs, duty sheriffs, firefighters, emergency medical responders, correctional and detention officers, and identified dispatchers and supervisory personnel as directly supporting workers.

Most Public Health Employees Should Be Covered by the Per Se Rule

Most, but not all, public health employees should be covered by the Per Se Rule. However, according to Treasury’s recent guidance, some employees in the public health department may be excluded.

Eligible payroll costs include employees involved in providing medical and other health services to patients, and supervisory personnel, including medical staff assigned to schools, prisons, and other such institutions, and other support services essential for patient care.

In addition, employees of public health departments directly engaged in matters related to public health and related supervisory personnel are covered by the Per Se Rule. But employees who are indirectly engaged in public health matters are not eligible.

Uncertainty and Increased Administrative Burden

Treasury’s new guidelines essentially subjects these workers who indirectly support frontline workers to the same factual and legal scrutiny as other types of employees who are subject to “substantially different use” standard.

The new guidelines create another hurdle for CRF recipients, i.e., a determination of whether certain employees are directly or indirectly related to frontline workers.

This new limitation is inconsistent with Treasury’s policy of administrative accommodation. Further clarification by Treasury is required. It is unfair for Treasury to now limit the scope of the Per Se Rule six months into the ten-month covered period.

Unfortunately, the impact of this rule may keep some counties and cities from properly including all of their public health workers because of (1) the factual and legal uncertainty over whether a particular employee “directly” supports its frontline workers and/or (2) their lack of resources to perform a proper analysis and create the additional documentation needed.

Takeaways

  • Treasury’s guidance reaffirms that CRF funds may be used to pay for public safety and public health payroll costs.
  • However, Treasury’s guidance limited the scope of which public safety and public health payroll costs qualify as per se eligible.
  • Treasury’s limitation should not create substantial economic hardships, but unfortunately, it will create increase administrative burdens.

Questions? Please contact:

Bruce HendrickTed Harrington
[email protected][email protected]
214.855.3033214.855.3115

Additional Information
Treasury Guidance (Updated 9/2/2020)
Treasury FAQs (Updated 9/2/2020)

Treasury Confirms Coronavirus Relief Fund (“CRF”) Recipients Need Only Minimal Supporting Records To Substantiate Public Safety And Health Payroll Costs For CRF Compliance

2 minute read

Treasury’s initial CRF Guidance provided a nonexclusive list of eligible expenditures. Among these eligible expenditures are payroll costs for “public safety, public health, health care, human services, and similar employees whose services are ‘substantially dedicated’ to mitigating or responding to the COVID-19 emergency.”

Treasury later clarified in its Frequently Asked Questions that payroll costs for public health and public safety employees are legally presumed to be “substantially dedicated” to mitigating or responding to the COVID-19 emergency.

According to Treasury’s Office of Inspector General (“OIG”), recipients of CRF funds “can presume that all payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency (emphasis added).” Thus, payroll costs for these employees are presumed to be an eligible CRF expenditure.

Carrington Coleman dubbed this legal presumption for public health and public safety payroll costs as the “Per Se Rule.”

Minimal Records

On August 14th, the OIG informally announced on a webinar that it would require only minimal supporting records to substantiate eligibility. On August 28th, the OIG formally confirmed that position.

The only records needed for these Per Se eligible payroll costs are (1) regular payroll/HR records and (2) usual accounting records.
No additional or specially created documentation is required to demonstrate that these per se eligible payroll costs are “substantially dedicated” to the COVID-19 emergency. This underlying policy is intended to reduce the administrative burden that would otherwise exist by parsing through public health and public safety department records to demonstrate, on an individual basis, which employees are substantially dedicated to responding to COVID-19.

Takeaway

CRF fund recipients should embrace, and benefit from, the Per Se Rule. The Per Se Rule will maximize benefits while reducing CRF compliance risk.

Questions? Please contact:

Bruce HendrickTed Harrington
[email protected][email protected]
214.855.3033214.855.3115

Additional Information can be found through the links below:

Treasury Confirms Coronavirus Relief Fund (“CRF”) Recipients Need Only Minimal Supporting Records to Substantiate Public Safety and Health Payroll Costs for CRF Compliance

less than a minute

Treasury’s initial CRF Guidance provided a nonexclusive list of eligible expenditures. Among these eligible expenditures are payroll costs for “public safety, public health, health care, human services, and similar employees whose services are ‘substantially dedicated’ to mitigating or responding to the COVID-19 emergency.”

Treasury later clarified in its Frequently Asked Questions that payroll costs for public health and public safety employees are legally presumed to be “substantially dedicated” to mitigating or responding to the COVID-19 emergency.

According to Treasury’s Office of Inspector General (“OIG”), recipients of CRF funds “can presume that all payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency (emphasis added).” Thus, payroll costs for these employees are presumed to be an eligible CRF expenditure.

Carrington Coleman dubbed this legal presumption for public health and public safety payroll costs as the “Per Se Rule.”

MINIMAL RECORDS

On August 14th, the OIG informally announced on a webinar that it would require only minimal supporting records to substantiate eligibility. On August 28th, the OIG formally confirmed that position.

The only records needed for these Per Se eligible payroll costs are (1) regular payroll/HR records and (2) usual accounting records.
No additional or specially created documentation is required to demonstrate that these per se eligible payroll costs are “substantially dedicated” to the COVID-19 emergency. This underlying policy is intended to reduce the administrative burden that would otherwise exist by parsing through public health and public safety department records to demonstrate, on an individual basis, which employees are substantially dedicated to responding to COVID-19.

TAKEAWAY

CRF fund recipients should embrace, and benefit from, the Per Se Rule. The Per Se Rule will maximize benefits while reducing CRF compliance risk.

21 Carrington Coleman Lawyers Recognized By Best Lawyers®

2 minute read

Carrington Coleman is proud to have 17 attorneys listed in 2021 Edition of The Best Lawyers in America©. These lawyers were recognized for their strengths across the entire legal spectrum: appellate practice, bankruptcy and creditor debtor rights / insolvency and reorganization law, business organization, corporate law, employment, environmental law, family law, financial services regulation, litigation (commercial, construction, labor and employment, intellectual property, patent, personal injury, regulatory enforcement, securities), real estate law, and trusts and estates.

Four Carrington Coleman associates were selected by Best Lawyers for the inaugural year of Best Lawyers: Ones to Watch. This special recognition is given to attorneys in private practice who are earlier in their careers for outstanding professional excellence. Our “Ones to Watch” are: Monica Gaudioso, recognized in Commercial Litigation; Parker Graham, recognized in Commercial Litigation and Labor and Employment Law – Management; Michael Lin, recognized in Real Estate Law; and Brent Rubin, recognized in Appellate Practice and Commercial Litigation.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Because Best Lawyers is based on an exhaustive peer-review evaluation and attorneys are not required (or allowed) to pay a fee to be listed, inclusion in Best Lawyers is considered a singular honor.

Carrington Coleman attorneys named as 2021 Best Lawyers® include:

  • Cathy Altman (2013) Litigation – Construction Law; Litigation – Construction
  • Mike Birrer (2019) Employment Law – Individuals; Employment Law – Management; Litigation – Labor and Employment
  • Lyndon Bittle (2016) Appellate Practice; Insurance Law
  • Robert H. Botts (2010) Trusts and Estates
  • Ken Carroll (2014) Appellate Practice; Commercial Litigation
  • Bruce W. Collins (2011) Commercial Litigation; Litigation – Regulatory Enforcement (SEC, Telecom, Energy); Litigation – Securities
  • David G. Drumm (2012) Real Estate Law
  • Carmen E. Eiker (2016) Family Law
  • Kelli M. Hinson (2021) Commercial Litigation; Product Liability Litigation – Defendants
  • Mark Howland (2016) Litigation – Intellectual Property; Litigation – Patent
  • Charles C. Jordan (2006) Environmental Law; Real Estate Law
  • Monica Latin (2015) Appellate Practice; Commercial Litigation; Employment Law – Management
  • George T. Lee (2020) Corporate Law; Financial Services Regulation Law
  • Stephen L. Levine (2021) Patent Law
  • Bret A. Madole (2020) Business Organizations (including LLCs and Partnerships); Closely Held Companies and Family Businesses Law
  • Christie A. Newkirk (2013) Employment Law – Management, Labor Law – Management
  • J. Michael Sutherland (2016) Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

(Year) First year the lawyer was listed.

Christie Newkirk And Chelsea Glover Join Carrington Coleman Employment Practice

2 minute read

Prominent labor and employment attorney Christie Newkirk has joined Carrington, Coleman, Sloman & Blumenthal, LLP, as a partner.

Ms. Newkirk has more than 20 years of counseling, litigation, investigative, and training experience representing employers on HR and compliance matters. She joins the firm from Diamond McCarthy, LLP, where she was Co-Chair of the Labor and Employment Law practice.

“Employment law is more complex than ever, requiring lawyers who are able to serve as trusted advisors to businesses navigating critically important decisions. We are pleased that Christie is joining us, and excited about what this means for our clients,” said Carrington Coleman Managing Partner Monica Latin.

Ms. Newkirk’s comprehensive employment practice includes providing advice regarding COVID-19 laws and workplace issues, planning and implementing reductions in the workforce, managing employee performance issues, managing high risk employment decisions, preparing confidentiality, noncompetition and executive employment agreements, as well as general preventative advice and counseling.

Active in the legal and North Texas community, Ms. Newkirk is the Membership Chair of the Dallas Women Lawyers Association, a former chair of the Dallas Bar Association’s Employment Law Section, and a former Co-Chair of Attorneys Serving the Community’s Networking Committee.  She also currently chairs the Las Colinas Country Club’s Board of Governors and is a member of the Dallas Area Habitat for Humanity Board of Directors. Her employment law expertise has earned her repeated recognition by Texas Super Lawyers, Best Lawyers in America, US News & World Report, and D Magazine.

Also joining the firm is labor and employment and commercial litigation associate Chelsea Glover.

Ms. Glover joins the firm from Gibson Dunn’s Dallas office, and her practice will focus on employment and litigation matters. Prior to joining the firm, she handled a wide range of matters involving human resources, immigration, class actions, antitrust, and women’s rights. She is a member of the J.L. Turner Legal Association. She is conversational in Japanese and Spanish. Ms. Glover is a graduate of Harvard University and Duke University School of Law.

Taxation Of Coronavirus Relief Fund Grants To Households And Small Businesses

3 minute read

(Last updated July 6, 2020)

The CARES Act established the Coronavirus Relief Fund (“CRF”) to make payments for specified uses to states and local governments. CRF is a relief (not stimulus) program designed to mitigate the impact of the COVID-19 crisis. Texas was allocated $11.24 billion of CRF funds- the US Treasury disbursed $3.2 billion directly to 18 Texas local governments (those with over 500,000 residents), and the remaining $8.04 billion will be distributed from the state to the local governments that did not receive direct disbursements.
Subject to the CRF compliance rules, Texas local governments have broad discretion on how to deploy the CRF funds within their communities. Pursuant to various governmental economic development programs, a significant portion of the CRF funds are being distributed as economic aid to (1) small businesses suffering business interruption losses caused by COVID-19 and (2) households suffering job and income losses caused by COVID-19 for housing and food relief.

Grants to households (i.e., individuals) are taxed differently than grants to small businesses. As explained below, need-based grants to households likely fall under the general welfare exclusion, and are therefore not taxable, whereas grants to small businesses are likely not covered by this exclusion, and would be taxable.

Household Grants

Taxpayers are taxed on their gross income, which is defined as “all income from whatever source derived.” However, there are several exclusions from that statutory rule, and the IRS has long recognized a non-statutory exclusion to that rule, i.e., the general welfare exclusion.

The general welfare exclusion exempts from the recipient’s taxable income payments by governmental units under legislatively provided social programs that promote the general welfare. To qualify, the payments must (1) be made from a government fund, (2) be made for the promotion of general welfare (generally based upon individual or family needs), and (3) not represent compensation for services rendered.

Need-based grants to households are likely excluded from taxable income under the general welfare exclusion. However, there are other possible exclusions for the grant, including characterizing it as a gift under Section 102 of the Code, as a qualified disaster relief payment under Section 139 of the Code, or as a capital contribution to the business.

Small Business Grants

While grants to small businesses would appear to fit under the general welfare doctrine, the IRS has ruled that grants to a business generally do not qualify for the general welfare exclusion, because they are not based upon individual or family needs.

Congress recently changed the tax code to make clear that any contribution by a governmental entity to the corporation is taxable. Although the rule only applies to corporations, the IRS would likely treat other businesses (e.g., sole proprietorships, partnerships, LLCs and S corps) similarly.

On July 6, 2020, the IRS confirmed that the receipt of a government grant by a business generally is not excluded from the business’s gross income under the Code and therefore is taxable.

Bruce HendrickTed Harrington
[email protected][email protected]
214.855.3033214.855.3115

SEC CAN STILL SEEK DISGORGEMENT, BUT SCOTUS EXPLAINS LIMITATIONS

2 minute read


Earlier this week, the Supreme Court handed down its ruling in Liu v. Securities and Exchange Commission, No. 18-1501. This ruling is significant for two reasons. First, it resolves the previously unsettled question as to whether the SEC is empowered to seek a disgorgement award. The SEC is. Second, it explains limits upon disgorgement awards necessary to ensure it is not an improper penalty. 

As you may know, disgorgement is an equitable remedy intended to deprive wrongdoers of the net profits of unlawful conduct. The SEC often seeks a disgorgement award in connection with securities fraud claims. In the 2017 case of Kokesh v. SEC, the Supreme Court found disgorgement to be a penalty for statute of limitations purposes, but did not go so far as to decide whether disgorgement could still be imposed as a form of equitable relief. Equitable relief has generally not permitted recovery that would be punitive. This left a big question for the SEC and defendants alike. Can the SEC keep seeking disgorgement in these cases?
In this case, appellants challenged a $27 million award of disgorgement stemming from a visa scheme as an improper penalty. While the Supreme Court vacated the disgorgement award and remanded for further proceedings, it reaffirmed that the SEC had authority to seek disgorgement and explained certain restrictions on that recovery to ensure it is correctly calculated and used to reimburse victims of the fraud found in the lawsuit. More specifically, the Supreme Court clarified that courts must consider factors including what the actual profits from the fraud net of “legitimate expenses” are as well as ensuring that the money awarded is actually returned to defrauded investors and not the SEC.
This is a partial win for both the SEC and defendants against whom the SEC seeks disgorgement. For the SEC, it can still seek disgorgement, which has been a vital tool in its tool belt for enforcement in recent years. For defendants, they are now armed with significant arguments to limit the amount of disgorgement awarded. It remains to be seen exactly how or to what extent this will impact securities litigation, but for now we expect the SEC to continue pursuing and receiving disgorgement awards, but the size of those awards to shrink under the Supreme Court’s new guidance of what is necessary to avoid constituting an improper penalty.

Additional Relief And Flexibility Provided To PPP Borrowers By The Paycheck Protection Program Flexibility Act Of 2020

6 minute read

(Last updated June 5, 2020)

Today, June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) into law. The text of the Flexibility Act can be found here. As its name implies, the Flexibility Act provides much-needed flexibility to PPP borrowers.

Over the past couple of months, we have heard from numerous clients about their concerns about having to use all of their PPP funds within the limited 8-week period after their funds were received. In many cases, those clients were prohibited by government order from opening their businesses during that period – or were at least severely limited in how “open” they could be – and questioned the logic of having to pay employees to sit at home. Their concerns were amplified by the fact that unemployment benefits had been increased by an additional $600 per week payment funded by the federal government on top of the usual state benefits – boosting the unemployment benefits of some of their laid-off employees to an amount well in excess of what the employee earned previously. Of course, in many cases, this made it difficult to hire employees back once the PPP funds arrived. Congress clearly heard these concerns and others and the Flexibility Act is the result.

WHAT YOU NEED TO KNOW

(1) Extension of the 8 Week Period for the Forgivable Use of PPP Funds – The 8 week “covered period” is no more – unless you still want it. The new covered period for the forgivable usage of your PPP funds begins on the date that you received your funds and extends until the earlier of: (i) the expiration of 24 weeks thereafter, or (ii) December 31, 2020. In recognition of the fact that there are some employers who will be able to fully use their PPP funds during the 8 week period established previously, Congress built in a provision that allows those employers to elect to have the 8 week period apply – if they prefer – so that they can submit their forgiveness application at an earlier date.

(2) Extension of Deadline to Rehire Employees or Restore Compensation Levels – For those employers who laid-off workers between February 15, 2020 and April 26, 2020 (30 days after the CARES Act was enacted), the “safe harbor” deadline to restore full-time equivalent (FTE) headcount and employee compensation levels was previously June 30, 2020, failing which a reduction in forgiveness for such reduced headcount and/or compensation levels would be applied. The previous June 30, 2020 deadline is now December 31, 2020. Please keep in mind that the covered period described in point (1) above still applies for forgivable fund usage, but, so long as you can properly spend all of your PPP funds within the now longer period (which should be quite easy for most employers), you won’t be required to ramp back up to your full staff and compensation levels until December 31, 2020.

(3) Relief for Employers with Trouble Rehiring Employees or Who Cannot Restore Prior Business Activity Levels Due to Health Requirements and Guidance – The Flexibility Act includes a new provision that loan forgiveness will not be impacted by a reduction in FTE headcount if either of the following apply: (i) the employer can document that they weren’t able to rehire all of their former employees and were also not able to hire similarly qualified replacement employees by December 31, 2020; or (ii) the employer can document that they were unable to return to the same level of business activity as existed before February 15, 2020 due to compliance with requirements established or guidance issued by the HHS, CDC or OSHA during the period beginning March 1, 2020 and ending December 31, 2020, related to maintenance of standards for sanitation, social distancing, etc. related to COVID-19.

(4) Relaxation of the 75% Payroll Spending Requirement – The previous requirement created by the SBA and the Department of Treasury that PPP borrowers needed to spend at least 75% of their PPP funds on payroll costs is gone and has been replaced by a 60% requirement. There is, however, one potentially significant issue that has resulted from the new language. The language now says “(t)o receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs . . .” This language creates a potential “cliff” in that it seems to say that no forgiveness will be granted if an employer doesn’t meet the 60% payroll cost threshold – unlike the previous language associated with the 75% threshold that only would have resulted in a reduction of forgiveness if the threshold wasn’t met. Members of Congress are already pointing this issue out to the SBA and seeking confirmation on whether this seemingly unintended effect can be negated through regulations to be issued by the SBA.

(5) Extension of the Payment, Interest and Fee Deferral – The previous 6 month period for deferral of payments, interest, and fees has now been replaced by a deferral of those items until the “date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted to the lender.” This language begs the question of what happens if a borrower never applies for forgiveness. To close that loophole, the Flexibility Act includes a provision that says that if a borrower fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered period described in point (1) above, such borrower shall make payments of principal, interest, and fees on the loan beginning on the day that is not earlier than 10 months after the last date of the covered period. In other words, Congress has provided a significant deferral on the payment of non-forgiven loan amounts and of interest and fees thereon.

(6) Exclusion from Payroll Tax Deferrals for PPP Borrowers is Removed – The CARES Act included a provision that allowed almost all employers to defer the employer’s portion of Social Security payroll taxes that would otherwise have been required to have been paid for the period from March 27, 2020 until December 31, 2020, until: (i) December 31, 2021 for the first 50%, and (ii) December 31, 2022 for the balance. However, the CARES Act also included an exclusion that prohibited an employer who was also a PPP borrower from benefiting from that deferral once PPP loan forgiveness was granted (amounts deferred prior to that forgiveness determination could continue to be deferred, but all amounts coming due after that date would not be able to be deferred). The Flexibility Act removes that limitation on PPP borrowers and they can now realize the full benefit of the payroll tax deferral provision regardless of when or if their PPP loan is forgiven. It is important to note that self-employed individuals can also benefit from this deferral provision by deferring 50% of their Social Security payroll tax obligations until the dates provided above.

(7) Extension of the Repayment Term for PPP Loans . . . Sort of – All of the provisions of the Flexibility Act discussed above include enacting language that makes it clear that they apply as if included in the CARES Act originally, however, the much-hyped extension of the two-year repayment term for unforgiven PPP loan amounts to a new and improved five-year repayment term isn’t what it appears to be at first glance. The five-year repayment term is only applicable to any loan made on or after the enactment of the Flexibility Act (which is today, June 5, 2020). So, the $500B+ in PPP loans previously funded are not guaranteed to have that five-year minimum repayment term. The Flexibility Act does, however, provided that nothing in the Flexibility Act will prevent lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan to the new minimum term. In other words, Congress didn’t want to pull the rug out from under lenders and force them to live with an unanticipated five-year repayment term on previously funded loans but will allow them to agree to an extended repayment term if they desire.

Final Thoughts: The Flexibility Act generally does a good job of living up to its name and is expected to be warmly received by PPP borrowers – and may even trigger additional demand for the remaining $100B+ in allocated PPP funds that haven’t yet been funded. If you are one of those employers who have been sitting on the sideline on account of the previous constraints of the program, you may wish to give the PPP another look. For those who have already received their PPP loans, be prepared for additional regulations that will comport the program as previously applied to the new legislation. Among other things, these changes will include revisions to the forgiveness application.

David Heidenreich
[email protected]
214.855.3031