Congress has passed the Consolidated Appropriations Act of 2021, designed to help those struggling financially because of the COVID-19 pandemic. The bill contains numerous provisions, everything from funding the government to extending unemployment benefits to providing additional aid for struggling industries. It is expected to be signed into law once it reaches the president’s desk.
The Act also contains several key provisions regarding the SBA and Paycheck Protection program, better known as the PPP. Here is a summary:
- Deductibility of PPP-funded expenses: This provision overturns the IRS ruling that expenses funded with PPP loans were not deductible. The effective date is back to the enactment of the CARES Act.
- EIDL advances: The $10,000 EIDL advance is excluded from income and no expenses are disallowed with respect to the income exclusion. In addition, EIDL advances no longer will reduce the amount of PPP loan forgiveness.
- Income exclusion and expense deductions for payments made on Section 7(a) SBA loans: Section 1112 of the CARES Act provided that the SBA would pay up to six months of principal and interest on certain SBA loans. The new Act would provide, similar to PPP loans, that the principal paid by the SBA does not result in income forgiveness and no deductions are disallowed as a result of the income forgiveness.
- Expanded PPP covered costs: The Act expands the definition of covered costs to include payment for any software or cloud computing services, employer personal protection equipment and similar costs, purchases of essential business goods and supplies on contracts entered into before the start of the PPP-covered period and any property damage incurred because of public disturbances that are not otherwise covered by insurance. The effective date is back to the enactment of the CARES Act, but PPP loans on which forgiveness has been determined are not eligible for the expanded costs.
- Covered period flexibility: All borrowers are allowed to choose a covered period ending at any point between eight and 24 weeks after the PPP loan origination.
- 501(c)(6) organizations eligible for PPP loans: Qualifying 501(c)(6) organizations (e.g., chambers of commerce, business leagues) have been added as being eligible to apply for PPP loans.
- Simplified forgiveness for loans up to $150,000: Within 24 days of the enactment of the Act, the SBA must develop a forgiveness application of no more than one page that requires the borrower to estimate the number of employees they were able to retain and to provide an estimate of the amount of PPP loan spent on payroll. No additional information will be required to be submitted, but the borrower must retain relevant employment records for up to four years.
- PPP second draw: Certain business concerns, those with 300 or fewer employees and who can show gross receipts reductions of at least 25 percent during a prior year period, are eligible for a new PPP loan of up to the lesser of a) 2.5 times (3.5 times for NAICS 72 businesses) average monthly payroll over a specified 12 months or b) $2 million. Similar to the original PPP loan, at least 60 percent of the loan must be spent on payroll, and second draw loans will be excluded from income and no expenses will be disallowed as result of the loan forgiveness.
- Grants for shuttered venue operators: The Act authorizes up to $15 billion, of which $2 billion is set aside for business entities with fewer than 50 employees, for grants to operators of venues — such as all live performing arts, museums and motion picture theaters — whose quarterly gross revenue was 25 percent lower than the comparable 2019 period. The grants are based on need-based certification and are to be used for payroll, rents, utilities and employee protective equipment. During the first 14 days of the program, only grants for businesses with a 90 percent or more reduction of gross receipts will be considered. As with other programs, the grant will not be income to the recipient, and no expenses will be disallowed as a result of the income exclusion.
- Extension of SBA payments of 7(a) loans: Borrowers with eligible SBA loans will receive an additional funding of three months of principle and interest starting in February 2021. The payments are capped at $9,000 per month. Certain hard-hit industries (NAICS beginning with 61,71,72,213,232, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532 and 812) will be eligible for five months of additional payments after the end of the three-month period. As with other programs, the grant will not be income to the recipient and no expenses will be disallowed as a result of the income exclusion.
As of the morning of Dec. 22, this Act had not been signed into law, but there is every expectation the president will do so once it reaches his desk. We will continue to digest this massive bill of more than 5,500 pages and will issue subsequent alerts providing additional details on these PPP provisions and other sections of the Act.
Gregory Butler is a partner leading the Milwaukee tax practice at Wipfli. He has more than 25 years of experience providing tax compliance and consulting services.