Late Sunday night, Senate Majority Leader Mitch McConnell announced Congress finally reached an agreement on the terms of a second stimulus package to follow the CARES Act that passed in late March of this year. While we are still waiting on the President’s signature, a copy of the text of the bill was released yesterday afternoon and contains multiple provisions affecting business owners across the country. PLEASE NOTE THE INFORMATION BELOW IS SUBJECT TO PRESIDENTIAL SIGNATURE WHICH IS STILL PENDING AS OF THE TIME THIS UPDATE WAS DRAFTED. We are monitoring the progression of the bill and will be providing more specific updates unique to the different programs, but a general overview of two of the most pressing items (Tax Consequences of PPP Loans and Second Round PPP) is provided below:
TAX CONSEQUENCES OF PPP LOANS
Expenses Paid Using PPP Loans and EIDL funds NOW DEDUCTIBLE – One of the biggest issues remaining from the CARES Act (highlighted by IRS Notice 2020-32 and then the recently released Rev. Ruling 2020-27) was the fact that the IRS took the position that while PPP Loan funds were not income, expenses paid using PPP loan funds that would ordinarily be deductible could not be deducted. This position left many businesses with a significant cash flow issue and created tax liabilities higher than some companies could sustain. The bill provides 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 [the amount of the loan forgiven].”
ECONOMIC AID TO HARD-HIT SMALL BUSINESSES,
NONPROFITS, AND VENUES ACT
PPP Second Draw Loans - Eligible businesses (“Eligible Entity”), including non-profits and eligible sole proprietor / self-employed individuals, may now apply for a second round of Paycheck Protection Program Loans if they meet certain criteria. Eligible Entities are entities that:
- Employ no more than 300 employees (with additional qualifiers for businesses with more than 1 location and affiliated entities), AND
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Have gross receipts during the first, second, or third quarter of 2020 (or 4th quarter of 2020 for applications submitted after January 1, 2021) that show a 25% decline over the same quarter in 2019.
Certain exclusions apply, including, but not limited to, certain types of industries and businesses with 20% or more foreign ownership specific to China. Loans are capped at the lesser of either 2.5 times monthly payroll (either the average total monthly payroll for 2019 or the 1 year period before the date on which the loan is made) or $2,000,000.00. Similar to the first round of PPP Loans, provisions are included for seasonal employers and other variations.
Additionally, specific provisions have been made for restaurant owners, including the option to use a payroll multiplier of 3.5 instead of 2.5 and a “per location” standard to assist restaurant owners with multiple locations under one business enterprise who may have more than 300 total employees.
Please continue to check your email for updates as we work through this next round of federal assistance and navigate the process for our clients.
