January 08, 2021
Congress agreed to approve a $900 billion COVID-19 relief package as part of the Consolidated Appropriations Act (CAA), 2021. Of which, the CAA included a second round of the Paycheck Protection Program (PPP) for businesses that are still struggling from COVID-19.
Key provisions include:
· Additional funding for new PPP loans
· Ability to obtain a second PPP loan
· Clarification of deductibility of PPP loan expenses
To be eligible for the second round of PPP loans, an employer must:
· Generally have 300 or fewer employees
· Have used the entire amount of their first PPP loan (or will use such amounts)
· Have a decrease in gross receipts by 25% for Q1, Q2, Q3, or Q4 2020 compared to the same quarter in 2019
· Meet the “Necessity Requirement” which requires that the “current economic uncertainty” makes the loan request “necessary”
The CAA has clarified that PPP loan-related expenses will be deductible, which overrules the stance taken by the IRS in Notice 2020-32. This matches up with the original stipulated intent of the CARES Act, which was the loan forgiveness would not be taxable (directly or indirectly).
The CAA has amended the covered period for which PPP loans can be used and still qualify for loan forgiveness. The original PPP had an 8-week covered period, which was later extended to 24 weeks. The CAA further liberalized the 24 week covered period by allowing borrowers to choose their own covered period between 8-24 weeks long to exhaust all PPP proceeds.
Furthermore, the CAA has expanded the usage of the PPP funds to:
· Covered Operations Expenditures – Payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.
· Covered Property Damage Costs – 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.
· Covered Supplier Costs – Expenditure to a suppler of goods that are essential to the operations of the entity at the time at which the expenditure is made & is made pursuant to a contract, or order in effect at any time before the covered period with respect to the covered period or, respect to perishable goods, in effect at any time during the covered period.
· Covered Worker Protection Expenditures – Operating or capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the DHHS, CDC, OSHA, or any equivalent requirements established, or guidance issued by a State or local government between March 1st, 2020 and the ending date declared by the President under the National Emergencies Act.
The CAA has stipulated that Economic Injury Disaster Loan (EIDL) Advances will not reduce PPP loan forgiveness. Instead, borrowers may be allowed to amend their PPP loan forgiveness applications (waiting for on guidance from the SBA).
Furthermore, the CAA stipulated a simplified forgiveness application for applicants that borrowed $150,000 or less in PPP loans. The simplified process requires the submission of a single page that provides a description of the number of employees that recipient was able to retain because of the loan, an estimated amount of the loan spent on payroll, and the total loan value.
Lastly, the CAA added a provision for PPP loans in bankruptcy, which allows borrowers in bankruptcy to be eligible for PPP loans.