The Paycheque Protection Program (PPP), which was originally part of the CARES law of March 27, 2020, has undergone several changes since its inception, including the PPP Flexibility Act of June, a myriad of final rules draft and other guidelines issued by the Small Business Administration (SBA). On December 27, 2020, a new stimulus bill (the Consolidated Appropriations Act, 2021) was enacted, significantly modifying the PPP and associated small business provisions of the CARES Act.

Tax treatment of PPP loans

The new stimulus bill provides businesses with further relief by making it clear that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan which is then canceled. Also, the canceled portion of a PPP loan or second draw loan (discussed below) should not be included in the borrower’s gross income, no tax attributes should be reduced, and no increase in borrower’s income. basis should not be refused due to exclusion of gross income. income from this canceled loan.

Second draw PPP loans

Some small businesses that have been hit hardest during the pandemic may be eligible for an additional PPP loan (a Second Draw Loan) if, among other things, they do not employ more than 300 employees, have spent the full amount of their first PPP loan, and can demonstrate a reduction of at least 25% in gross revenue in the first, second or third quarter of 2020 compared to the same quarter in 2019. Second-draw loan applications submitted on or after January 1 2021, may also use the gross receipts of the fourth quarter of 2020. The pre-waiver rules for PPP memberships for certain companies in the restaurant and accommodation industries, certain franchises and entities receiving funds from approved lenders of small businesses. This investment also applies to these second draw loans. Companies not in operation on February 15, 2020 are not eligible. Additionally, entities that receive a grant under the new Shuttered Venue Operator Grant (discussed below) are not eligible for a second loan.

In general, eligible borrowers may receive a second loan in an amount equal to 2.5 times (3.5 times for entities in some accommodation and food services industries) their average monthly salary costs, with an amount maximum loan of $ 2 million. Like the PPP, amounts spent on eligible labor costs – as well as covered mortgage interest, rent, and utility payments – are eligible for a rebate. In addition, the stimulus bill provides that the following non-salary expenses are also eligible for the rebate:

• Covered operating expenses (which includes expenses for software, cloud computing, and other human resource and accounting needs);
• Covered property damage costs (which includes expenses related to property damage due to pubic disorders occurring in 2020 that are not covered by insurance);
• Supplier costs covered (which include the expenses of a supplier under a contract, purchase order, or order for goods in effect before the loan was taken out and which are essential to the borrower’s operations at the time the loan is taken out). expenditure has been incurred; the supplier’s costs of perishable goods may be incurred before or during the term of the loan); and
• Expenses covered for worker protection (which includes spending on PPE and other adaptive investments to help the borrower comply with health and safety guidelines – at the federal, state, and local levels – related to COVID-19 during the period between 1 March 2020 and the end of the national emergency declaration).

Businesses that have received an initial PPP loan (and have not yet been forgiven) can also request a rebate for amounts spent on these additional expenses.

The PPP requirement that 60% of the loan proceeds be spent on salary costs, and the existing PPP security rules on the reinstatement of full-time equivalent employees and wages and salaries, continue to apply.

Simplified remittance request (PPP loans under $ 150,000)

Previously, the SBA had established a streamlined pardon application process for certain borrowers with P3 loans under $ 50,000. The new stimulus bill establishes a similar streamlined pardon application process for borrowers with P3 loans below $ 150,000. This new process requires eligible borrowers to sign and submit a one-page attestation indicating the number of employees retained due to the loan covered, the estimated loan amount spent on salary costs, and the total loan amount. Borrowers with PPP loans less than $ 150,000 will also be required to: (1) certify that they have accurately provided the required certification and have complied with the PPP requirements; and (2) retain relevant employment records for four years and other records for three years. This new application process applies to PPP loans under $ 150,000 that have not yet been canceled. While this new pardon request is not yet available, the SBA is required to complete this request form within 24 days of enactment of the bill.

Additional modifications

In addition to the above changes, the new stimulus bill provides the following:

• Borrowers can choose any covered period starting on the date the borrower receives the loan and ending on a date chosen by the borrower between 8 and 24 weeks after the start of the loan.
• The initial PPP loan program has reopened and is available until March 31, 2021, for those who have not yet participated.
• Debtors in bankruptcy may be eligible for a PPP loan or a second draw loan, if approved by the court.
• $ 20 billion has been allocated for a Targeted Economic Disaster Lending Advance (EIDL) program for eligible entities located in low-income communities.
• The period covered for emergency EIDL grants has been extended until December 31, 2020.
• Borrowers are no longer required to deduct the amount of an EIDL advance from their PPP remittance amount. The SBA will issue rules for borrowers who have already received a rebate and whose EIDL advance has been deducted from this amount.
• Specifies that group insurance benefits provided by the employer, such as life insurance, disability insurance, group vision and dental care, are included in the salary costs eligible for pardon.
• Requires the SBA to develop an audit plan within 45 days of enactment of the bill, which details the policies and procedures for performing remission reviews and audits of covered loans and the metrics the SBA will use to determine which loans will be audited.
• Clarifies that after the date of enactment of the bill, public enterprises listed on a national stock exchange are not eligible for PPP loans or second-draw loans.
• Confirms that churches and religious organizations are eligible borrowers.
• Expands PPP eligibility to certain housing co-ops, news organizations, public colleges and universities that have a public broadcasting station, 501 (c) (6) organizations, destination marketing organizations and EIDL beneficiaries who meet the eligibility criteria.
• Authorizes $ 15 billion in grants for “closed theater operators”, including qualifying venue operators or promoters, theater producers, operators of live performing arts organizations, operators of museums, cinema operators and talent representatives who, among other things, demonstrate a 25% reduction in income and have not received, on or after the date of the new stimulus bill, a loan PPP or a Second Draw Loan. The SBA may provide an initial grant of up to $ 10 million to an eligible person or entity, and an additional grant equal to 50% of the initial grant. Access to these grants will be phased, and during the initial 14-day implementation period of this program, grants will only be awarded to eligible entities that have experienced a loss of income of 90% or more.
• For SBA 7 (a), 504 and microloans that were granted before the enactment of the CARES Act, the SBA will resume payments of principal and interest for an additional 3 months (8 months for some small businesses hardest hit by pandemic), capped at $ 9,000 per borrower per month. For SBA 7 (a), 504 and microloans granted within 6 months of the enactment of the CARES law or approved between February 1 and September 30, 2021, the SBA will pay the first 6 months of principal and interest, capped at $ 9,000 per month.

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