Congressional lawmakers have finally reached agreement on the long-awaited next coronavirus relief package.  House and Senate leaders announced all parties have agreed on the $900 billion Emergency Coronavirus Relief Act of 2020 on Sunday.  The language of the bill will be finalized and votes in the House and Senate are expected today.  Once the bill passes the House and Senate, it will go to the President to sign into law.  Below we go over the high points of what’s included in the bill.

PPP Expenses Are Deductible

The first item we want to highlight is likely the most discussed item in our year-end tax planning meetings…PPP deductibility.  Expenses paid with PPP funds that are forgiven will now be deductible.  The bill goes a step further to button down exactly what the initial intent was with the PPP funds by including that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied.”

Easier PPP Forgiveness Application for Loans Under $150,000

PPP borrowers with loans under $150k will now be able to use the one-page 3508S forgiveness application to apply for forgiveness.  This is the same application that has been used for loans under $50k.  The biggest impact is that borrowers using this form are not subject to reduction of forgiveness based on FTE or Salary/Wage reductions.  Those borrowers will now not need to provide their FTE or wage reduction calculations.  The only requirements are:

• loan funds are used to pay costs eligible for forgiveness
• at least 60% of funds were used for payroll costs
• the amount of PPP funds going to payroll for business owners has been capped at the appropriate levels

Second Round of PPP Loans for Eligible Borrowers

If you didn’t have enough fun with your first PPP loan (or weren’t able to get one), you may be able to get a second.  The loan amount calculation for these is the same as the first (2.5 times average qualified monthly payroll), but these second-round PPP loans are capped at $2 million.  There are new eligibility requirements which will mean fewer companies will qualify for this second round.  The new eligibility requirements are:

• The borrower must employ no more than 300 employees, or meet an alternative size standard.
• The borrower must demonstrate that there was a 30% reduction from the gross receipts of the entity during the same quarter in 2019.
• For the purposes of this 30% rule, gross receipts will include all revenues from the normal operation of the business before subtraction of expenses but will not include amounts borrowed, including amounts received for PPP loans.

Keep in mind borrowers must also still certify that this loan is “necessary.”  Given the “uncertainty” level is now lower than it was when PPP loans were first introduced, it may be more difficult for companies to certify that a second PPP loan is “necessary to support the ongoing operations.”

Small Changes to Forgiveness Application Process for Loans $150,000 to $2,000,000

There will be slightly less support documentation required to be submitted to the lender if you have a PPP loan between $150k and $2MM.  However, this does not mean you do not have to have and maintain the documentation.  The bill does reduce the amount of time these borrowers have to maintain the information from six years after the forgiveness application submission to:

• Four years after forgiveness application submission for “all employment records relevant to the application for loan forgiveness”
• Three years after forgiveness application submission for “all other supporting documentation relevant to the application for loan forgiveness”

501(c)(6) Organizations Eligible for PPP

Organizations classified as 501(c)(6) are now eligible for PPP loans if they:

• Have less than 150 employees
• Did not receive more than 10 percent of receipts from lobbying activities
• Lobbying did not make up more than 10 percent of the total activities of the organization

Several 501(c)(6) organizations decided to take the Employee Retention Credit when they were not eligible for PPP.  We need to wait and see the final language and understand how the new PPP loans and the Employee Retention Credit interact.  There might be the case where an organization that is taking Employee Tax Credits might give up those credits in order to receive a PPP loan.

More Stimulus Checks to Individuals

A second round of stimulus checks will be provided to people.  Individuals making less than $75,000 in 2019 ($150,000 for married filing jointly), will receive $600 ($1,200 for couples).  Children and dependents listed on 2019 tax returns are also eligible for $600 each.

Corporate Meal Expenses 100% Deductible in 2021 and 2022

The draft bill included language the President was pushing to help restaurants.  This will make business meals 100% deductible in 2021 and 2022.  Currently only 50% of the cost is deductible.

Unemployment Benefits Enhanced and Extended

A federal unemployment benefit of $300 per week for up to 11 weeks through mid-March would be provided.  This is less than the $600 provided in the March relief package but is welcomed news as unemployment rates are spiking.

Eviction Moratoriums Extended

The bill would offer $25 billion in emergency rental assistance and provide an extension of eviction moratoriums.

Targeted EIDL Loan Program

Additional EIDL Loan funds up to $50,000 would be available to companies that:

• Have 25 employees or less
• Experience at least a 30% reduction in business
• Is not an agricultural enterprise

As we discussed and wrote about at length when the first EIDL loans were made available earlier this year, there are many restrictions associated with these loans.  Businesses receiving these loans are unable to pay several things without SBA approval.  It is our opinion that the restrictions imposed on the borrower when taking these loans make it so that this funding should be viewed as a potential last resort to help save the business.

Final Words

We will continue to follow and track this bill as the language is finalized.  We will do our best to keep you up to date on any developments or changes made to the final version.