New round of PPP loans and tax breaks in year-end stimulus package | Tonkon Torp LLP
After months of stalled negotiations, Congress finally passed the Consolidated Appropriations Act for 2021 (the “Act“), which includes a $ 900 billion stimulus package to support the struggling economy. The law, signed into law by the president on December 27, 2020, includes an additional $ 284.45 billion in credit for the protection program paychecks (“PPP“), which will be available to both new borrowers and certain recurring PPP borrowers who meet specified criteria.
This client alert addresses (i) the eligibility conditions of borrowers under the last PPP funding cycle, (ii) the new and updated list of “covered expenses” that can be paid with PPP funds, and ( iii) certain borrowers – favorable clarifications to the law regarding the tax treatment of PPP loans.
Who is eligible for the new PPP funding round?
Repeat PPP borrowers
By law, borrowers who have already received a PPP loan can apply for a second PPP loan as long as they (a) employ no more than 300 employees, and (b) have experienced a 25% drop in revenue. gross in any fiscal quarter in 2020 compared to the same fiscal quarter in 2019.
New eligible borrowers
The law also extends the eligibility criteria to allow certain companies that were not previously eligible to participate in the PPP. The following list of entities are now eligible to apply for and receive a PPP loan:
- Any news station licensed by the Federal Communications Commission that (a) has fewer than 500 employees, or (b) is a non-profit organization operating as a “public broadcasting corporation
- Any business majority owned or controlled by a business with NAICS code 511110 (newspaper publishers) or 5151 (radio networks, radio stations and broadcasters), which certifies in good faith that the proceeds of the loan will be used to support the business components that produce or distribute local or emergency information
- 501 (a) Tax-exempt “destination marketing organizations” that are engaged in the marketing and promotion of communities and facilities to promote travel and recreation
- 501 (c) (6) organizations which (a) do not receive more than 15% of revenue from lobbying activities, (b) have less than 15% of their total activities as lobbying activities, (c) n ” did not exceed $ 1,000,000 in lobbying activities in the most recent tax year, and (d) employ no more than 300 employees
Expanded list of eligible “covered expenses”
In addition to payroll, rent, mortgage interest and utility expenses, the law provides for several new categories of expenses that can be paid with PPP loan funds (without a corresponding reduction in the discount). The new list of discounted fees and expenses includes:
- Expenses related to business software or cloud computing software that facilitate business operations (for example, payroll tracking, sales or invoicing functions, or inventory)
- Costs related to property damage resulting from vandalism in 2020 that are not covered by insurance
- Certain supplier costs that are (a) essential to the borrower’s business and (b) were incurred under agreements or purchase orders in effect prior to the applicable borrower’s coverage period
- Capital expenditures incurred to facilitate compliance with safety standards issued by HHS, CDC, or OSHA (for example, new ventilation systems, outdoor space expansions, and PPE purchases)
Tax deductibility of expenditure financed by PPP
In November, the Treasury Department issued guidelines prohibiting deductions for covered expenses funded by the proceeds of PPP loans. The Law goes beyond this orientation. Borrowers who have spent PPP funds on covered expenses will be entitled to a deduction for those expenses. The law also specifies that the cancellation of the PPP loan will not result in the cancellation of the debt income included in the gross income.
The law includes other important requirements in relation to the implementation of the new PPP funding cycle, such as: (a) a requirement that the Small Business Administration (“SBA”) Issue guidance on barriers to access to capital for minority-owned, underserved, ex-combatants and women businesses with the aim of ensuring equitable access to PPP loans, (b) a simplified rebate request for borrowers with loans of $ 150,000 or less; and (c) a mandate requiring the SBA to submit an audit plan within 45 days of enactment of the Act.
We will undoubtedly see additional guidance from the SBA in the coming weeks regarding the implementation of the law, and our team will be following all developments as this latest round of PPPs unfolds.