Alert: New COVID-19 Relief Bill – Key Provisions for the Paycheck Protection Program
Minutes before midnight on December 21, 2020, in the first major COVID-19 relief bill since this spring, Congress passed a $900 billion COVID-19 relief bill in combination with a $1.4 trillion omnibus government spending bill.
Key PPP provisions of the new COVID-19 relief bill include:
- A new round of PPP loans to small businesses. The new round of PPP loans contains revisions to prior borrower eligibility criteria, so eligibility for this new round should be examined by any interested businesses. Unlike prior rounds, initial language indicates borrowers will need to show a 25% decline in gross revenue for any 2020 quarter when compared to the same quarter in 2019 to be eligible for this new round of PPP funds.
- A simplified forgiveness application for borrowers with PPP loans of $150,000 or less will be produced by the SBA within 24 days of the COVID-19 relief bill’s enactment. This will be a welcome addition as many borrowers under prior PPP funding rounds are looking to their PPP lenders to provide confirmation of loan forgiveness.
- For borrowers who received PPP funds as well as applied for Economic Injury Disaster Loans (EIDLs), any EIDL advances, which are treated as grants that do not have to be repaid, will no longer be deducted from the PPP forgiveness amount.
- Tax Deductibility for PPP expenses. This was a significant issue for borrowers. The original CARES Act stated that forgiven PPP loans would not be treated as income to borrowers, however it did not address the deductibility of otherwise deductible expenses for which such tax-exempt funds were utilized.
IRS and Treasury issued guidance throughout the year stating that expenses paid with funds from PPP loans that were forgiven (or that the borrower anticipated would be forgiven even if such forgiveness had not yet been received) could not also be deductible for federal income tax purposes. The thought being that this would be a windfall to borrowers, to avoid recognizing forgiveness of indebtedness income and still benefit from allowing taxpayers to deduct the expenses such tax-exempt funds were used to satisfy. Assuming the relief bill is signed by the President, the law would supersede such IRS guidance. We anticipate that additional guidance and clarifications from SBA, Treasury, and the IRS will be forthcoming.