New COVID Relief Law Revises and Reopens PPP to New Borrowers

The Consolidated Appropriations Act, 2021 (CAA) signed into law by President Trump on December 27, 2020, includes Division N, Title III, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), which continues the Paycheck Protection Program (PPP) and other small business support programs. Title III provides a number of revisions to the PPP and reopens the program to new borrowers for First Draw PPP Loans and to certain existing borrowers for Second Draw PPP Loans.

On January 6, 2021, the U.S. Small Business Administration (SBA) posted a new interim final on the Paycheck Protection Program as Amended by the Economic Aid Act, which incorporates the Economic Aid Act amendments required to be implemented by regulation within 10 days of enactment the act. For ease of borrower and lender reference, this interim final rule also consolidates the interim final rules (and important guidance) issued to date governing borrower eligibility, lender eligibility, and PPP application and origination requirements for new PPP loans, as well as provides general rules relating to loan increases and loan forgiveness. This rule is hereinafter referred to as the “Consolidated First Draw PPP IFR” and the changes discussed below are applicable to both First Draw and Second Draw PPP loans issued after December 27, 2020. Additionally certain changes (as noted) are applicable to PPP loans issued prior to August 8, 2020, that have not been forgiven.

For more information on First Draw PPP Loans, download the slides or view the recording our special webinar “Applying for PPP” from January 12, 2021.

The Economic Aid Act makes the following changes to the PPP:

Tax Implications of Otherwise Deductible Expenses paid with Forgiven PPP Loan

• Clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.

Eligible Borrowers

• Extends PPP eligibility to housing cooperatives defined in section 216(b) of the Internal Revenue Code of 1986 and which employ no more than 300 employees.

• Makes eligible FCC license holders and newspapers with more than one physical location, as long as the business has no more than 500 employees per physical location or the applicable SBA size standard; and makes eligible section 511 public colleges and universities that have a public broadcasting station if the organization certifies that the loan will support locally focused or emergency information.

• Expands eligibility to receive a PPP loan to include the following organizations:
  • • 501(c)(6) organizations if:
      • The organization does not receive more than 15% of receipts from lobbying;
      • The lobbying activities do not comprise more than 15% of activities;
      • The cost of lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020 and
      • The organization has 300 or fewer employees.

Professional sports leagues or organizations with the purpose of promoting or participating in a political campaign or other political activities are not eligible under this section.

• • • Destination Marketing Organizations if:
      • The organization does not receive more than 15% of receipts from lobbying;
      • The lobbying activities do not comprise more than 15% of activities;
      • The organization has 300 or fewer employees; and
      • That destination marketing organization is registered as a 501(c) organization, a quasi-government entity, or a political subdivision of a state or local government.

Ineligible Borrowers

• Clarifies that a business or organization that was not in operation on February 15, 2020 shall not be eligible for a First Draw PPP loan or a Second Draw PPP loan.

• Prohibits eligible entities that receive a grant under the Shuttered Venue Operator Grants from obtaining a PPP loan.

• Excludes publicly traded companies from PPP eligibility.

Seasonal Employers

• Defines a seasonal employer to be an eligible recipient which:
  1. 1. operates for no more than seven months in a year, or
     2. earned no more than 1/3 (33.33%) of its receipts in any six months in the prior calendar year.

Seasonal employers meeting this definition are required to use a 12-week period between February 15, 2019 and February 15, 2020 to calculate their maximum loan amount for purposes of the PPP

Applies to any loan made before, on or after Applies to loans before, on, or after the date of enactment, except for a loan for which the borrower has already received forgiveness.

Farmers and Ranchers

• Establishes a specific loan calculation for the first round of PPP loans for farmers and ranchers who operate as a sole proprietor, independent contractor, self-employed individual, who report income and expenses on a Schedule F, and were in business as of February 15, 2020. These entities may utilize their gross income in 2019 as reported on a Schedule F. Lenders may recalculate loans that have been previously approved to these entities if they would result in a larger loan.

Applies to PPP loans before, on, or after the date of enactment, except for loans that have already been forgiven.

Payroll Costs

• Clarifies that other employer-provided group insurance benefits are included in payroll costs. This includes, group life, disability, vision, or dental insurance.

Allows loans made under PPP before, on, or after the enactment of this act to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.

The SBA is providing updated guidance to assist businesses in calculating their payroll costs (and the relevant documentation that is required to support each set of calculations) for purposes of determining the maximum amount of a First Draw PPP loan for each type of business: PAYCHECK PROTECTION PROGRAM HOW TO CALCULATE MAXIMUM LOAN AMOUNTS FOR FIRST DRAW PPP LOANS AND WHAT DOCUMENTATION TO PROVIDE – BY BUSINESS TYPE (1/17/21)

Allowable Uses of PPP loan Funds

• Makes the following expenses allowable and forgivable uses for PPP funds:
  • • Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
    • Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
    • Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
    • Covered worker protection expenditures. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020 and the end of the national emergency declaration.

Allows loans made under PPP before, on, or after the enactment of this act to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.

• Prohibits any eligible entity from using proceeds of the covered loan for lobbying activities.

Covered Period

• Allows the borrower to elect a covered period ending at the point of the borrower’s choosing between 8 and 24 weeks after origination of the PPP loan.

• Extends the covered period for all PPP loans through March 31, 2021.

Simplified Forgiveness

• Creates a simplified application process for loans under $150,000 such that:
  • • 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 covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The borrower must also attest that borrower accurately provided the required certification and complied with PPP loan requirements. Additionally, borrowers are required to retain relevant records related to employment for four years and other records for three years. The Administrator may review and audit these loans to ensure against fraud.

First Draw PPP Loan Increases

• Requires the SBA to release guidance to lenders within 17 days of enactment of this act that allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable so long that they have not  received forgiveness. Additionally, the new law allows borrowers whose loan calculations have increased due to changes in interim final rules to work with lenders to modify their loan value regardless of whether the loan has been fully disbursed, or if Form 1502 has already been submitted.

Read SBA Procedural Notice 5000-20076, First Draw PPP Loan Increases After Enactment of the Economic Aid Act for more information on how certain eligible borrowers can reapply for or request an increase to a First Draw PPP Loan.

EIDL Advance Deduction

• Repeals section 1110(e)(6) of the CARES Act, which requires PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount and establishes the Sense of Congress that EIDL Advance borrowers should be made whole without regard to whether those borrowers are eligible for PPP forgiveness.

Other Changes

• Requires the President, Vice President, the head of an Executive department, or a Member of Congress as well as their spouse that has received a PPP loan to disclose this status at forgiveness or 30 days thereafter. It would also prohibit the covered individuals from receiving a loan in the future.

• Clarifies that fee waivers; personal guarantee waiver; and deferral eligibility continues past the covered period and attaches for the life of the PPP loan.

• Clarifies the interest rate on PPP loans is non-compounding and non-adjustable for all new First Draw PPP loans and Second Draw PPP loans.

Loan Application and Documentation Requirements

• The applicant must submit to the lender SBA Form 2483 (Paycheck Protection Program Borrower Application Form) or the lender’s equivalent form including the required certifications and documentation.

• Additionally applicants may be required to submit the following documentation:
  • • If the applicant is not self-employed, the applicant’s Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019, as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided.
    • A partnership must also include its IRS Form 1065 K-1s.
    • If the applicant is self-employed and has employees, the applicant’s 2019 (whichever was used to calculate loan amount) IRS Form 1040 Schedule C, Form 941 and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019, as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable, must be provided. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
    • If the applicant is self-employed and does not have employees, the applicant must provide (a) its 2019 Form 1040 Schedule C, (b) a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020.

For Second Draw PPP Loans, applicants can also provide the documentation listed above from 2020, if they are using 2020 instead of 2019 to calculate the loan amount.

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For additional information on the new stimulus provisions included in the Consolidated Appropriations Act, 2021, as well as other Federal, state and local relief measures, please visit our COVID-19 Resource Center on our website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at covid19team@tsacpa.com