Passage of COVID-19 Relief Law PPP Loans & Other Key Provisions
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law which included additional COVID-19 related relief.
Tax Deductibility for Paycheck Protection Program (PPP) Expenses
The CAA specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes disputed IRS guidance (Notice 2020-32 and Rev. Rul. 2020-27) that such expenses could not be deducted. The CAA clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. The provision is effective as of the date of enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The provision provides similar treatment for second draw PPP loans, effective for tax years ending after the date of enactment of the provision.
Restart of PPP Loans
New PPP loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
• Have 300 or fewer employees
• Have used or will use the full amount of their first PPP loan
• Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
Borrowers from the following groups are still eligible for the program even if they didn’t take out a loan in the first round:
• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
• Sole proprietors, independent contractors, and eligible self-employed individuals
• Not-for-Profits, including churches
• Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location
PPP Loan Terms
As with earlier PPP funding, the costs eligible for loan forgiveness in the new PPP funding include payroll, rent, covered mortgage interest, and utilities. The new PPP funding also makes the following potentially forgivable:
• Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
• Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
• Covered operating costs such as software and cloud computing services and accounting needs
• Covered property damage cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either 8 or 24 weeks — the same parameters earlier PPP funding had when it stopped accepting applications in August 2020.
PPP Loan Forgiveness
The CAA creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower will receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the CAA’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
Additionally, the CAA repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.