Late Monday, December 21, 2020, the Senate passed a 5,593-page bill named the “Consolidated Appropriations Act 2021” for a second round of emergency economic relief and government funding and the President signed the bill late last night (Sunday, December 27).
The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level review of the related PPP provisions.
- The bill specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted. Specifically, the bill clarifies that “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.” This provision applies to loans under both the original PPP and subsequent PPP loans.
- The bill repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
- The bill creates a simplified forgiveness application process for loans of $150,000 or less.
- PPP2 loans will be available to first-time qualified business borrowers under the same rule as the initial PPP program, including:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans; and
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Businesses that previously received a PPP loan may apply for a PPP2 loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million provided that:
- The business has 300 or fewer employees;
- The business has used or will use the full amount of their first PPP loan; and
- The business can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
- PPP2 has expanded its availability to non-profits to now include 501(c)(6) business leagues, such as Chambers of Commerce, visitors’ bureaus, etc., and “destination marketing organizations”, provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobby activity.
- As with the original PPP, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 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.
While this new bill is a sense of relief for many business owners and PPP borrowers, it will still be crucial to actively watch for guidance issued by the SBA and the Department of Treasury. As with the initial PPP roll out, we should not be surprised to see further guidance and interpretations issued with respect to applying for PPP2 loans, submitting PPP Loan Forgiveness Applications, and other program specifics.
If you have questions about the new stimulus bill or PPP2, FMJ’s PPP Loan Application and Audit Team can help. Please contact Bob Fafinski at robert.fafinski@fmjlaw.com or Jim Seifert at james.seifert@fmjlaw.com. In addition, you can find some frequently asked questions about the PPP and PPP2 on our website here.
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