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Stimulus Bill Update – PPP is Back for Another Round and Expenses are Tax-Deductible

Posted by Carlin Culbertson on Dec 21, 2020 8:37:48 PM

Close up of businessperson hand holding money bags

The text of the latest stimulus bill was released mid-afternoon on December 21, 2020, and I think an army of accountants, lawyers, and journalists almost broke the internet downloading it to read through it.  The bill is 5,593 pages long.  You can find it here if you want to take a look. 

It looks like the Act brings long awaited clarification regarding the deductibility of expenses associated with forgiveness of Paycheck Protection Program (PPP) loans.  In short, the Act provides that any otherwise deductible business expenses incurred related to the forgiveness of a PPP loan shall not be denied a deduction by reason of such forgiven loan being excluded from taxable income.  This position is contrary to recent IRS guidance on the matter.

Another major part of the new bill is another round of PPP loans, referred to in the bill as “Paycheck Protection Program Second Draw Loans”.  For businesses that are struggling this is great news to have access to these funds again.  Here are some of the key differences and updates for the second round.

    • The entity must have been in operation on February 15, 2020.
    • Gross receipts decline of 25% or more during any quarter of 2020 compared to the same quarter in 2019.  If you apply after January 1, 2021, then you can compare the 4th quarter 2020 to the 4th quarter 2019.
      • If the company wasn’t in business during part or all of 2019 or is seasonal, there are different comparisons available.
      • The SBA has 10 days after the bill becomes a law to issue guidance on how companies will verify this.
    • Fewer than 300 employees, reducing the limit from 500.
      • The per physical location rules from the initial PPP program still apply for NAICS code 72 (Accommodation and Food Service Sector) entities.
    • There are restrictions related to ownership, board representation, etc. related to the People’s Republic of China (“China”).
      • Cannot own or hold, directly or indirectly, 20 percent or more of the business.
      • Cannot have a board member who is a resident of China.
      • This section mentions “or that has significant operations in the People’s Republic of China” so it isn’t clear what that means at this point.
    • The maximum amount of the loan will be $2 million this time.  Otherwise the formula is the same so you would likely receive the same amount received prior.
      • You can elect to use the 1-year period before the date or the loan OR calendar year 2019, so it is possible you could obtain a different loan amount.
      • For NAICS code 72 (Accommodation and Food Service Sector) entities the multiple is 3.5 times instead of 2.5 times.
    • Publicly traded companies (defined as “an entity that is an issuer, the securities of which are listed on an exchange registered as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f)” are not be eligible.
    • The covered period starts on the loan date and can be 8-weeks or 24-weeks still.
    • March 31, 2021 is the deadline to apply for a Second Draw PPP Loan

Other than the second round of PPP loans being available, the bill also provides simplified forgiveness for loans $150,000 or less.  Expect a new forgiveness application to be created (or the SBA may reuse the existing $50,000 or less version) to allow for simplified for forgiveness for these borrowers.

The bill also adds some new eligible expenses you can use the funds on.  It also appears that if you haven’t filed for forgiveness yet for your first PPP loan, you can include these items in your forgiveness application.  For most borrowers that won’t matter since with 24-weeks they had plenty of expenses, but for those that still had a balance left because of reductions in their workforce or something else, this could be a way to get more of the loan forgiven.

    • Covered worker protection
      • Various items as defined in the bill – some examples are adding a drive-through window, air filtration systems, physical barriers such as a sneeze guard, PPE, etc.
    • Covered operations expenditures
      • Means a 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
      • A 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
      • There are various criteria, but basically anything you buy from a supplier using a contract, order, or purchase order that was in effect before the covered period, or if a perishable good in effect before or at any time during the covered period.

The bill clarifies that benefits are medical “or group life, disability, vision, or dental insurance” for existing PPP loans and future PPP loans.

The bill removes the reduction of forgiveness for receiving an EIDL advance, so the $10,000 grant some companies received under that program no longer reduces your forgiveness.  The bill states the SBA and Treasury should issue rules within 15 days of the bill being enacted that determine how this will apply to entities that already received forgiveness.

It extends the number of loan payments the SBA can make on behalf of borrowers for existing SBA loans (this was part of the CARES Act back in March/April, so if you have an eligible loan you’ll know it).  In most cases it is 6 months of payments, with some exceptions. 

There are funds available for “Shuttered Venue Operators” and this term means a live venue operator or promoter, theatrical producer, or live performing arts organization operator, a relevant, museum operator, a motion picture theatre operator, or a talent representative”.  If this may apply to you, contact us to discuss the details.

There’s a lot in there, so be prepared now that the bill has passed and has been signed into law. For PPP, once banks are ready for applications it should be much simpler to apply to this time as most of the information is already on file with the lender from your original application and you’ll just need to have the information to substantiate the gross receipts decline.  The SBA will likely provide a new application and instructions for this second round, so some clarification on what is acceptable will likely come with those documents.  In most cases you should receive the same amount up to the new limit.

Now that the bill has been signed into law, you should contact your bank to determine when they will begin accepting applications.  In the meantime, contact us to discuss any questions you may have.

Topics: Tax Planning & Strategies, Small Business, Accounting & Auditing, Accounting and Tax Resource, COVID-19, Featured

Carlin Culbertson

Carlin Culbertson

With over 15 years in public accounting, Carlin has extensive auditing experience serving a wide variety of clients in various industries, including construction, manufacturing, mining, biotechnology and distribution.

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