KEY PROVISION
Paycheck Protection Plan (PPP) Round 2 Headlines Relief for Small Businesses
Tax & Economic Provisions of 2021 Stimulus | January 2021
Not only did the Act allocate $284 billion for additional loans to qualified borrowers, it also clarified one of the most controversial aspects of the CARES Act.
The CARES Act provided for loan forgiveness if no less than 60% of the loan amount was used to meet payroll over a covered period of either eight or 24 weeks. This provision is also available for loans issued under the current Act. But in Notice 2020-32 (and affirmed in Rev. Rul. 2020-27), the IRS took the position that any expense paid with proceeds of a forgiven PPP would not be tax deductible in spite of Congressional statements to the contrary.
The Act clarifies that no deduction will be denied nor will any gross income be included as a result of the forgiveness of a PPP loan.
The second round of PPP makes significant modifications to the earlier program. In addition to first-time borrowers, businesses that received a loan under CARES may also apply. However, previous recipients are limited the lesser of 2.5 times the average monthly payroll costs for the 12 months preceding the loan (or 2019) or $2 million and must meet the following criteria:
- Must have 300 or fewer employees;
- Must have used or will use the full amount of their first PPP loan;
- Demonstrate that revenue declined by at least 25% in any quarter of 2020 when compared to the same quarter in 2019.
The qualified expenses that may be covered by the loans have also been expanded under the new program. The first round of loans was intended to cover payroll, rent, mortgage interest and utilities. In the second round, the proceeds may also be used for:
- Worker protection, such as personal protective equipment;
- Facility modifications to meet COVID-19 safety requirements;
- Software, cloud computing and accounting costs that facilitate business operations;
- Property damage costs due to looting or vandalism from public disturbances in 2020 not covered by insurance.
The Act also allows the borrower the option to choose any period beginning on the loan origination day and lasts between eight and 24 weeks, not just either eight or 24 weeks as in the prior round.
For loans of $150,000 or less, there is an expedited forgiveness process. The application for forgiveness will be an attested self-certification that provides the number of employees the business was able to retain as a result of the loan and the estimated amount of the loan used for payroll.
Two additional loan programs target specific businesses. An additional $20 billion was appropriated to fund the Small Business Administration’s Economic Injury Disaster Loan (EIDL) program for small businesses in low-income communities.
Applications can now be made for low interest rate loans with 30-year maturities through December 31, 2021.
To qualify, the business must:
- Have no more than 300 employees;
- Be located in a low-income community as defined by the new markets tax credit; and
- Experience a decline in gross receipts of at least 30% during an eight-week period from March 2, 2020 to December 31, 2021 when compared to a comparable period in 2019 or 2020 prior to March 2.
Each applicant is limited to a loan of $10,000, which is reduced for any amount received under the CARES Act allocation.
An additional $15 billion was appropriated to assist live-performance venues, movie theaters and museums:
- To qualify, the venue had to be fully operational on February 29, 2020.
- The initial grant is equivalent to 45% of 2019 revenue.
- A supplemental grant is available that is limited to 50% of the initial grant if the venue experienced revenue loss of at least 80% as of December 1, 2020.
Taken together, the grants are capped at $10 million:
- Businesses experiencing at least 90% revenue loss could apply within two weeks of the Act becoming law.
- All others that experienced at least 25% revenue loss could apply thereafter.
- To qualify, a business cannot also receive a PPP loan.