Just as Jupiter and Saturn converged on the evening of December 21, the House and Senate likewise converged and passed a $900 billion COVID-19 relief bill right before midnight with assurances from President Trump that he would sign the bill the following day. Fast forward to late Sunday, December 27th, and President Trump has finally signed the bill. Contained within the bill are provisions related to the Paycheck Protection Program (PPP) such as allowing a tax deduction for costs incurred with forgiven PPP funds, another round of PPP funding, expanded eligibility for 501(c)(6) non-profit organizations, and a simplified application for loans of $150,000 or less.
In contradiction to the IRS’s stance on the deductibility of costs incurred with forgiven or forgivable PPP funds, Congress has corrected an oversight in the CARES Act, and expenses paid with forgiven PPP funds will now be deductible. Tax deductibility applies to both rounds of PPP funding.
PPP Round 2
Another $284 billion has been allocated to the Paycheck Protection Program for first and second forgivable loans. Within 10 days of the bill’s enactment, the SBA (Small Business Administration) will issue regulations to continue PPP loans which will be available to second-time borrowers those that meet the following requirements:
- Have 300 or fewer employees
- Have spent or will spend the total amount of their first PPP loan, if applicable
- Had at least a 25% decrease in gross revenue in any quarter of 2020 as it compares to the same quarter in 2019
Eligible first-time borrowers for this second round include:
- 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 which includes churches
- Hotels and restaurants (businesses with an NAICS code beginning in 72) with fewer than 300 employees per physical location
The process of computing the loan amount is still 2.5 times the average monthly payroll costs. Hotels and restaurants are allowed up to 3.5 times the average monthly payroll costs.
The PPP funds can be used for costs previously allowed by the CARES act as well as for covered operations, property damage costs, supplier costs, and covered worker protection expenses. For example: Personal Protective Equipment (PPE) expenses, supplies that are essential to current operations, and software, computer, or accounting fees, etc.
Not-for-profit businesses classified under Sec. 501(c)(6) are now eligible to receive a PPP loan provided they do not receive more than 15% of total receipts from lobbying.
- The maximum amount of Round 2 PPP assistance that can be received is now $2 million, and the sum of a first and second loan cannot exceed $10 million.
A simplified forgiveness application will be available for PPP loans of $150,000 or less. The new application must be made available by the SBA within 24 days of the bill’s enactment. Borrowers using the simplified application will be required to keep records related to employment for 4 years and other records for three years.
Ashley Brand is a Tax Manager with ADKF & joined the ADKF family in 2017. She brings more than seventeen years of accounting experience to the firm, through her knowledge of compliance & planning, real estate, manufacturing, farm & ranch, oil & gas, high net worth individuals, restaurants, as well as estates & trusts. She is a Certified Public Accountant (CPA), and earned her Bachelors of Business Administration in Accountancy from the University of Texas, Permian Basin (UTPB).
Sarah Speer began her tax career with ADKF in January 2020, as a Tax Intern. Sarah is now a Tax Staff and earned her Master's in Public Accounting from Texas A&M University - San Antonio. She is striving to attain her CPA license.