NOTE—The COVID-related Tax Relief Act of 2020 and the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act amend the CARES Act, and this Article updates the information in the following Articles previously published:
- Paycheck Protection Program Under the Coronavirus Aid, Relief and Economic Security Act, March 31, 2020
- SBA Issues Interim Final Rule for the Paycheck Protection Program, April 3, 2020
- Update on Paycheck Protection Program Loans, April 9, 2020
- PPP Loan Forgiveness, April 29, 2020
- Additional PPP Loan Forgiveness Guidelines, June 2, 2020
- Amendments to CARES Act — Paycheck Protection Program Flexibility Act, June 8, 2020
- PPP Loan Forgiveness Application, After the Payroll Protection Program Flexibility Act of 2020, June 24, 2020
- When to Apply for Forgiveness of a PPP Loan, June 24, 2020
- Simplified PPP Forgiveness Procedure for Loans of $50,000 or Less, October 10, 2020
On December 27, 2020, the President signed the Consolidated Appropriations Act, 2021, which includes the COVID-related Tax Relief Act of 2020 and the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act. These acts amended the Payroll Protection Program (“PPP”) the principal program for small business economic relief under the CARES Act and authorize a second round of PPP Loans.
COVID-related Tax Relief Act of 2020
The COVID-related Tax Relief Act of 2020 addresses the tax treatment of PPP Loan proceeds, confirming that proceeds of a PPP Loan are excluded from gross income for tax purposes, and reverses recent rulings made by the IRS by providing that expenses paid with PPP Loan proceeds will be deductible. In addition, the Act clarifies the tax basis and other attributes of the Borrower’s assets will not be reduced based on the loan forgiveness.
The Act also extends the deferral period for payroll taxes from April 30, 2021, to December 31, 2021.
Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act
The Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act makes technical corrections to the PPP, expands both eligibility requirements for PPP Loan Borrowers and Eligible Expenses, and authorizes a second round of PPP Loans for eligible businesses.
Definitions Expanded and Clarifications — The Act expands expenses that may be included in Payroll Costs and Eligible Expenses, and clarifies the definition of Eligible Borrowers:
Payroll Costs — Group insurance payments for vision, dental, disability and life insurance may be included in Payroll Costs.
Eligible Expenses — The Act permits the expenditure of PPP Loan proceeds on several new categories of expenses, including:
- Expenditures for business software or cloud computing service that facilitates business operations and administration (“Covered Operations Expenditures”);
- Costs related to property damage, vandalism or looting from public disturbances during 2020 that are not covered by insurance (“Covered Property Damage Cost”);
- Expenditures made to a supplier of goods to the Borrower that are essential to the operations of the Borrower pursuant to an arrangement in place before the Covered Period (“Covered Supplier Cost”); and
- Costs incurred after March 1, 2020 to facilitate adaptation of activities of the Borrower to comply with COVID-19 requirements, including but not limited to physical barriers, ventilation or filtration systems improvements, expansion of additional business space, health screening capability, and personal protective equipment.
The expansion of permitted Payroll Costs and Eligible Expenses are available to any PPP Loan Borrower that has not received PPP Loan forgiveness as of December 27, 2020.
The Act clarifies that the “Covered Period” is either an 8-week period or 24-week period commencing on the date of the origination of the PPP Loan, as selected by the PPP Loan Borrower.
Eligible Borrowers —
The Act expands eligible borrowers for PPP Loans to include 501(c)(6) nonprofits (“501(c)(6) Organizations”) and “Destination Marketing Organizations” that meet eligibility requirements. 501(c)(6) Organizations are eligible to receive a PPP Loan if the organization does not receive more than 15% of its receipts from lobbying activities and lobbying activities do not comprise more than 15% of the total activities of the organization or exceed $1.0 million, and the organization has not more than 300 employees. A Destination Marketing Organization is described as a Section 501(c) organization engaged in marketing and promoting communities and facilities to businesses and leisure travelers.
The Act permits a debtor in possession or the trustee of an organization in a bankruptcy proceeding to obtain a PPP Loan upon authorization of the Bankruptcy Court.
The Act clarifies that to be an eligible PPP Loan Borrower, the business has to be in business on February 15, 2020.
Loan Forgiveness Simplified: The Act extends simplified loan forgiveness from PPP Loans of up to $50,000 to PPP Loans of up to $150,000. The Act provides that an eligible PPP Loan of up to $150,000 “shall be forgiven” upon an eligible PPP Loan Borrower submitting a simplified one-page loan forgiveness application. The SBA is required to provide the new simplified PPP Loan forgiveness application on or before January 20, 2021.
PPP Second Draw Loans:
The Act allocated $284.45 billion for a second round of PPP Loans (each a “PPP Second Draw Loan”). A business is eligible for a PPP Second Draw Loan if (i) the business employs not more than 300 employees and (ii) the business suffered a reduction in gross receipts of 25% or more in any calendar quarter of 2020 compared to the same quarter in 2019. For PPP Second Draw Loans of up to $150,000, the Borrower is only required to certify that the entity meets the revenue loss requirement. For nonprofit organizations, gross receipts is defined as receipts as determined by Section 6033 of the Internal Revenue Code.
The amount of the PPP Second Draw Loan will be equal to 250% of average monthly payroll costs incurred during the one-year period before the date on which the loan is made or calendar year 2019, as selected by the Borrower, but not to exceed $2.0 million.
In addition, eligible borrowers that returned all or part of the proceeds of a PPP Loan or did not accept the full amount of the PPP Loan for which they qualified may reapply for a PPP Loan for the difference between the PPP Loan proceeds retained by the Borrower and its allowable maximum PPP Loan amount.
Grants for Shuttered Live Venues, Theaters, and Museums: The Act sets aside $15 billion for grants for live venue operators or promoters, theatrical producers, live performing arts organizations, museum operators, motion picture theatre operators, and talent representatives, that meet the following requirements:
- employs not more than 500 employees;
- suffered a reduction in gross receipts of 25% or more in any calendar quarter of 2020 compared to the same quarter in 2019;
- has or intends to resume operations;
- is not controlled by a party that has securities listed on a national securities exchange;
- during 2019 did not receive more than 10% of its gross receipts from Federal funding;
- does not do business in more than one country or more than ten states; and
- has not received a PPP Loan.
Eligible grant recipients that were in operation on January 1, 2019, are eligible for grants equal to 45% of their gross earned revenue during 2019. Eligible grant recipients that began operations after January 1, 2019, are eligible for grants equal to 600% of their average monthly gross earned revenue for each month of operation during 2019. In each instance, the amount of each grant may not exceed $10 million.
The Small Business Administration has been directed to issue interim guidelines implementing these revisions to the Paycheck Protection Program, which will assuredly include additional requirements and details on the revised Program.
1 This Article addresses only updates to the CARES Act and PPP Loans and does not provide full information on PPP Loan eligibility, requirements, and loan forgiveness. For this information, please see the prior published articles.
2 $2.0 billion has been earmarked for grants to eligible entities with not more than 50 full-time employees.