The information below is subject to change as a result of rapidly evolving legislative developments and government guidance.
After months of intense negotiations, Congress passed the Consolidated Appropriations Act of 2021 (the Bill) on December 21, 2020. Weighing in at over 5,500 pages, this legislation expands on many of the key provisions from the CARES Act, including the Paycheck Protection Program (PPP). The Bill allocates an additional $284 billion in new funding for first and second time PPP borrowers. Absent from the bill are funding for state and local government and corporate liability protections from COVID-19 related lawsuits, two items that were on the Democrats’ and Republicans’ wish list, respectively.
In an unexpected turn of events, President Trump appeared in a video tweeted on December 22, 2020 denouncing the bill as bloated and promising to not sign the legislation if direct stimulus payments to eligible individuals were not increased from $600 to $2,000. However, the President signed the bill on Sunday December 27, 2020.
The Bill allows for qualified first-time borrowers as well as second-time borrowers that meet stricter qualifications to obtain a new PPP loan. In addition, if a borrower has returned a portion of funds but has not yet applied for forgiveness, they can reapply to receive the maximum allocation.
A borrower that previously received a PPP loan can obtain a second loan of up to $2 million if they have 300 or fewer employees and can demonstrate a 25% reduction in gross receipts in any 2020 calendar quarter, compared to the same quarter in 2019. The maximum loan amount for a second draw will be the same as the first round (2.5 times monthly average payroll), except for businesses in the accommodations and food service sector (NAICS codes starting with ‘72’), which will be eligible for 3.5 times monthly average payroll.
Eligibility for first time borrowers is largely unchanged from previous guidance, except the Bill also expands eligibility to certain 501(c)(6) organizations which includes “destination marketing organizations” and chambers of commerce. In order for a 501(c)(6) to qualify, it must have no more than 300 employees, not receive more than 15% of gross receipts from lobbying, and not spend more than $1 million on lobbying activities during the most recent tax year that ended prior to February 15, 2020.
Through the course of the pandemic, businesses have been forced to make additional investments including operational costs to continue serving customers like personal protective equipment (PPE), and administrative costs like cloud computing, software, and consulting to assist with PPP compliance. The Bill has added these types of costs as PPP forgiveness eligible expenses. Further, if an existing borrower has not yet applied for forgiveness, they may also include these types of costs. Borrowers must still spend at least 60% of the PPP loan on eligible payroll expenses in order to qualify for full forgiveness.
A few months after the initial installment of PPP, the IRS made waves with Notice 2020-32 which allowed a forgiven PPP loan to be non-taxable but barred a taxpayer from deducting expenses used toward forgiveness, effectively rendering the PPP loan forgiveness a taxable event. The IRS doubled down on this position in November. The Bill clarifies that for both original and subsequent PPP loans “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act.
While PPP has been a much-needed lifeline to many struggling businesses during the pandemic, its ever-changing guidance has made it a compliance nightmare for borrowers. The Bill creates a simplified forgiveness application for loans of $150,000 or less. The form is to be no longer than one page and would require a borrower to certify use of the funds without providing any documentation to the bank at the time of the application. As an added bonus, the Bill also reverses previous legislation which required a borrower’s PPP forgiveness be reduced by any Economic Injury Disaster Loan (EIDL) advance received.
More Bill Information
For additional information on other provisions included in the latest COVID-19 aid package, click here.
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As we have seen throughout 2020, the PPP guidance is constantly evolving. If you need assistance or have questions about how to proceed, please use the form below to contact us.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change as a result of rapidly evolving legislative developments and government guidance.