Current Federal Tax Developments

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SBA Issues New Short Form for Forgiveness and Revises Long Form to Take Into Account PPPFA Changes

The SBA has both revised the PPP loan forgiveness application form to take into account the changes made in the Paycheck Protection Program Flexibility Act (PPPFA) and added a new “Loan Forgiveness Application Form EZ” for qualified borrowers.[1]

The revised forms take into account changes made in the interim final rules released on June 16, 2020.[2]  The forms also clarify that a new limit on income replacement for sole proprietors discussed in the IFR will apply to partners and owner-employees.

Loan Forgiveness Application Form EZ

The PPP Loan Forgiveness Application Form 3508EZ[3] is available to borrowers who meet one of three criteria listed in separate form instructions.[4]

  • 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).

  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND 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. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.

  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND 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 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 of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.[5]

If a borrower does not fall into one of these categories, the borrower must use the longer SBA Form 3508.[6]

In the IFR also issued on June 16, 2020, the SBA provided that owner compensation replacement would be limited to 2.5 months worth (2.5/12) of 2019 net profit, capped at $20,833, for borrowers that used the 24 week covered period.[7]  In the original SBA Form 3508 application for forgiveness, proprietors, partners and “owner-employees” were covered by a similar limit that was set at 8/52 of 2019 self-employment income for partners and compensation for owner-employees.

The SBA Form 3508EZ (as well as the revised Form 3508) confirm that the new 2.5-month limit will also apply to partners and owner-employees.  The first certification on page 2 of Form 3508EZ provides:

The dollar amount for which forgiveness is requested:

  • if a 24-week Covered Period applies, does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual…[8]

The instructions for the form confirm this, providing:

Owner Compensation: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). For a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For an 8-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).[9]

Some advisors had continued to argue that it wasn’t clear previously that “owner-employees” covered corporate shareholders, but the employee benefits instructions for payroll costs for both forms indirectly make it clear that at least S corporation shareholders are covered by this limit.  The instructions for amounts to include as employee benefit costs now provide:

Employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees. Do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.[10]

The above reference should make it clear the SBA does consider S-corporation shareholders to be owner-employees for purposes of the various limitations.

The Form 3508EZ is reproduced below:

SBA Form 3508EZ page 1

SBA Form 3508EZ page 2

SBA Form 3508EZ page 3

Long Form – Revised June 16, 2020

The revised form[11] and instructions[12] contains changes to take into account the 24-week period, as well as other changes found in the PPPFA.  The long form contains the same provisions regarding owner-employees, partners and the self-employed as on the short form, limiting forgivable compensation for these owners for a 24-week covered period to 2.5 months of 2019 earnings,[13] with a cap at $20,833, as well as the same language applying these limits in the instructions.[14]


[1] “The CARES Act Provides Assistance to Small Business,” U.S. Department of Treasury website, June 17, 2020, https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses (retrieved June 17, 2020)

[2] RIN 3245-AH51, “Business Loan Program Temporary Changes; Paycheck Protection Program – Revisions to the Third and Sixth Interim Final Rules,” Small Business Administration, June 16, 2020, scheduled for publication on June 19, 2020, https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-13293.pdf

[3] “Paycheck Protection Program PPP Loan Forgiveness Application Form 3508EZ,” June 16, 2020, https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf (retrieved June 17, 2020)

[4] “PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers,” June 16, 2020 https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf (retrieved June 17, 2020)

[5] “PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers,” June 16, 2020, p. 1

[6] “PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers,” June 16, 2020, p. 1

[7] RIN 3245-AH51, Section 1.b, Revised Part III.1.f of Third Interim Final Rule (85 FR 21747, 21750)

[8] “Paycheck Protection Program PPP Loan Forgiveness Application Form 3508EZ,” June 16, 2020, p. 2

[9] “PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers,” June 16, 2020, p. 2

[10] “PPP Loan Forgiveness Application Form 3508EZ Instructions for Borrowers,” June 16, 2020, p. 2

[11] “Loan Forgiveness Application Revised June 16, 2020,” June 16, 2020, https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf (retrieved June 17, 2020)

[12] “Loan Forgiveness Application Instructions for Borrowers,” June 16, 2020, https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1.pdf (retrieved June 17, 2020)

[13] “Loan Forgiveness Application Revised June 16, 2020,” June 16, 2020, p. 2

[14] “Loan Forgiveness Application Instructions for Borrowers,” June 16, 2020, p. 3