The new, $900 billion COVID-19 relief bill passed by Congress clears up tax issues related to Paycheck Protection Program loans, authorizes new loans, makes loan forgiveness timelines less restrictive, and addresses many other issues in an economy wracked by COVID-19.
Nevertheless, the legislation is, at its core, a time-buying exercise.
Perhaps most important to businesses and business owners, Congress has batted aside an Internal Revenue Service concerning PPP expenses and taxes, and has created additional PPP funding and categories of eligible organizations.
After Congress in the original CARES (Coronavirus Aid, Relief, and Economic Security Act) provided for the PPP program, the IRS followed closely behind with a notice that expenses related to tax exempt income could not be deducted. Congress has overridden the IRS position just in time for Christmas.
About five million businesses were lent more than $500 billion in PPP loans, so the tax implications become obvious and nightmarish to businesses and tax preparers alike. The new bill extends deductibility to all covered PPP expenses, and expands the range of coverage to include organizations that weren’t previously eligible for the program.
Provisions of the new legislation are effective to the original CARES Act enactment, March 27, 2020.
Some $285 billion is authorized to be made available by the Small Business Administration (SBA) for a second round of PPP loans (those who didn’t seek a loan previously can now do so). These loans will also be eligible for forgiveness. In the original CARES Act, businesses of 500 or fewer employees could apply for help; under the new bill, that limit is reduced to businesses with 300 or fewer employees.
If a business took out a PPP loan in the first edition of the program, but returned all or part of it, it is eligible to participate in the new program as well.
Businesses that received a PPP loan, and which will line up for the second opportunity, must demonstrate that it has, or will, use the full amount from the first loan. The business must be able to show it has undergone a 25% revenue drop in 2020’s first, second, or third quarters, as compared to any quarter of 2019.
The maximum loan amount has been reduced to $2 million from the original CARES Act’s $10 million. Businesses receiving a loan – up to 2.5 times average prior year or calendar year monthly payroll costs - must spend up to 60% on payroll. Hotels and restaurants have a top limit of 3.5 times applicable monthly payroll costs.
Along with such eligible expenses as rent, utilities, and mortgage interest, and payroll, PPP’s latest version adds additional business operations or costs to the list of loan-forgivable expenses, among them: cloud computing services, software expenses, certain health and safety equipment and building or facility modifications to comply with federal requirements; and expenses deemed operationally essential at the time the business buys them.
The SBA in the bill has $15 billion for businesses and organizations designated as newly eligible for PPP help – as long as they were fully in business by Feb. 29, 2020. These include theatrical producers; live performance, museum, live venue operators or promoters and movie theater operators; and talent agencies. To be eligible, the business must also show a 25% first, second, or third-quarter 2020 revenue decline as compared to any 2019 quarter.
Non-profits are among the newly eligible for PPP loans.
The spending bills passed by Congress that include the COVID-19 relief provisions total nearly 5,600 pages. One reality is that it will, indeed, extend an economic lifeline to businesses and individuals pounded by the effects of COVID-19. The other reality is that all of this is borrowed money, bringing America’s national debt to over $28 trillion.
In the fiscal year that ended Sept. 30, 2020, Americans paid nearly $524 billion in interest on the debt. That number is going up. There’s no escaping it. As important as the COVID-related relief bills are to keep businesses alive, it’s only buying time until the economy resumes something approaching normalcy.
If not, that’s an entirely new problem in itself.
The new COVID relief bill is a massive, complicated, and lengthy piece of legislation. With year-end approaching, don’t wait to get with an accountant or financial adviser to make the best decisions you can, recognizing that what’s being bought, is time.
For everyone who wants to know how it affects their business there’s no time to lose.
Through our membership in the BDO Alliance USA, we have received an in-depth analysis on the components of this bill. That analysis can be found here:
The Rodefer Moss team is monitoring this situation closely. We expect more information in the coming days and will provide an update. If you have questions, please reach out to your Rodefer Moss advisor for questions.