Finally, late last night, Congress passed the $900 billion COVID-19 Relief Bill. By the time you read this the President will have probably already have signed it into law. 

Coming in at close to 5,600 pages it is a wide ranging bill that includes provisions not only for the extension of unemployment benefits and the second round of PPP loans, but also a vaccination distribution support, clean energy and even the creation of two new Smithsonian museums among others. As always, the devil will be in the details and it is doubtful that even those who voted for its passage have actually read it.  Here we will concentrate on the main aspects of the bill as they relate to financial consequences for individuals and businesses.

Those key provisions are as follows:

• $325 billion in aid for small businesses. 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. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
• $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
• $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits. 

Some of the most important provisions relate to the return of the PPP (now being called PPP2). Following are the most note worthy items in the bill as they relate to PPP:

Eligibility

PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

• Have 300 or fewer employees.
• Have used or will use the full amount of their first PPP loan.
• Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.

PPP2 will also permit first-time borrowers from the following groups:

• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
• Sole proprietors, independent contractors, and eligible self-employed individuals.
• Not-for-profits, including churches.
• Accommodation and food services operations (those with North American Industry Classification

System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

Loan terms

As with PPP1, 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 (love this!).

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications back in August.

PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount is now $2 million. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.

Simplified applications and other important terms

The new COVID-19 relief bill also:

• Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. This has extended the current EZ application for amounts up to $50,000. The SBA has been tasked with the requirement to create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Similar to the current EZ form, we expect that the borrower will be required to attest that they have used the proceeds as required to enable forgiveness and are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.

Tax deductibility for PPP expenses

• The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes prior IRS guidance that we have previously reported on that such expenses could not be deducted. We consider this to be a huge advantage of the bill and has drawn a sigh of relief from many business owners.
• The COVID-19 relief 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” by Section 1106 of the CARES Act. This provision applies to loans under both the original PPP and subsequent PPP loans.

The above are what we consider to be the highlights of the legislation and to top it all off you can celebrate by buying an expensive meal (take-out of course) as they are now 100% deductible instead of 50%. We will continue to monitor developments as they happen and report back to you as quickly as we can. Please contact us with any further questions.

We also want to take this opportunity to wish you, your family and friends a joyful holiday season and a very healthy and prosperous New Year!

Stay safe,
Your friends
The Partners and Staff of LHF