After months of stalled negotiations, Congress finally passed the Consolidated Appropriations Act for 2021 (the “Act”), which includes a $900 billion stimulus package to support the ailing economy. The Act, signed into law by the President on December 27, 2020, includes an additional appropriation of $284.45 billion for the Paycheck Protection Program (“PPP”), which will be available for both new borrowers and some repeat PPP borrowers that meet specified criteria.
This client alert addresses (i) the eligibility requirements for borrowers in connection with the latest round of PPP funding, (ii) the new and updated list of “covered expenses” that can be paid for with PPP funds, and (iii) certain borrower-friendly clarifications made in the Act regarding the tax treatment of PPP loans.
Who is eligible for the new round of PPP funding?
Repeat PPP Borrowers
Under the Act, borrowers that previously received a PPP loan can apply for a second PPP loan so long as they (a) do not employ more than 300 employees, and (b) experienced a 25% decrease in gross receipts during any fiscal quarter in 2020 as compared to the same fiscal quarter in 2019.
New Eligible Borrowers
The Act also expands the eligibility criteria to allow certain businesses that were previously ineligible to participate in the PPP. The following list of entities are now eligible to apply for and receive a PPP loan:
- Any news station with a license from the Federal Communications Commission that either (a) has less than 500 employees, or (b) is a nonprofit operating as a “public broadcasting company
- Any business concern that is majority owned or controlled by a business with NAICS code 511110 (newspaper publishers) or 5151 (radio networks, radio stations, and television broadcasters), that makes a good faith certification that the proceeds of the loan will be used to support the component business that produces or distributes locally focused or emergency information
- 501(a) tax-exempt “destination marketing organizations” that are engaged in the marketing and promotion of communities and facilities to promote travel and leisure
- 501(c)(6) organizations that (a) do not receive more than 15% of receipts from lobbying activities, (b) have less than 15% of their total activities as lobbying activities, (c) did not exceed $1,000,000 in lobbying activities during the most recent tax year, and (d) do not employ more than 300 employees
Expanded List of Qualifying “Covered Expenses”
In addition to payroll, rent, mortgage interest, and utility expenses, the Act provides several new categories of expenses that may be paid with PPP loan funds (without a corresponding reduction in forgiveness). The new list of forgivable costs and expenses includes:
- Business software or cloud computing software expenses that facilitate business operations (e.g., tracking of payroll, sales or billing functions, or inventory)
- Costs related to property damage resulting from vandalism in 2020 that are not covered by insurance
- Certain supplier costs that are (a) essential to the borrower’s business and (b) were incurred pursuant to agreements or purchase orders in effect prior to the borrower’s applicable covered period
- Capital expenditures incurred to facilitate compliance with safety standards issued by HHS, CDC, or OSHA (e.g., new ventilation systems, outdoor space expansions, and purchases of PPE)
Tax Deductibility of PPP Funded Expenses
In November, the Treasury Department issued guidance disallowing deductions for covered expenses funded by PPP loan proceeds. The Act overrides that guidance. Borrowers who spent PPP funds on covered expenses will be allowed a deduction for such expenses. The Act also makes explicit that PPP loan forgiveness will not give rise to cancellation of debt income includible in gross income.
The Act includes other important requirements in connection with the implementation of the new round of PPP funding, such as: (a) a requirement that the Small Business Administration (“SBA”) issue guidance addressing barriers to accessing capital for minority, underserved, veteran, and women-owned businesses for the purpose of ensuring equitable access to PPP loans, (b) a streamlined forgiveness application for borrowers with loans of $150,000 or less; and (c) a mandate requiring the SBA to submit an audit plan within 45 days after the enactment of the Act.
We will undoubtedly see additional guidance from the SBA in the coming weeks with respect to the implementation of the Act, and our team will be monitoring all developments as this latest round of the PPP unfolds.
If you have any questions regarding PPP loans, contact your primary Tonkon attorney.
Tonkon Torp Tax attorney Kate Roth (503.802.2189, firstname.lastname@example.org) and Corporate Finance attorneys Jeff Cronn (503.802.2048, email@example.com), Ferdie Ruplin (503.802.2029, firstname.lastname@example.org), Drea Schmidt (503.802.5703, email@example.com), and Betsy Judd (503.802.5769, firstname.lastname@example.org) are also available to answer your questions on all PPP-related matters.