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Second Round of PPP Loans, Federal Tax Deductibility of PPP Expenses, and Other Changes in the New COVID-19 Relief Bill

On Monday evening, Congress passed the latest round of much needed COVID-19 relief, which is included in the Consolidated Appropriations Act. The bill has passed both the House and Senate, but based on comments from the President, it is not clear whether he will sign it without significant modifications (or whether he might veto it). The following assumes the bill is signed into law unchanged.

Second Round of PPP Funding & Eligibility

The second round of PPP loans includes an additional $284 billion of forgivable loans. This will be administered through lending institutions, similar to the first round of loans. However, there will be some changes in the criteria needed to apply. The main difference is the requirement for a 25% decrease in gross revenue in one quarter of 2020, from the same quarter in 2019.

These loans are available to first-time borrowers and those that previously received a PPP loan. Loans are limited to $2 million. We expect the SBA and lenders to work quickly to open up the loan application process, and, like the first round, these funds may go quickly. If you meet the criteria and want to apply, we recommend preparing for the application now.

Federal Tax Deductibility of Expenses Related to Forgiven PPP Loans

Business expenses paid with forgiven PPP Loans are now tax-deductible for Federal tax purposes. This is a welcome provision that supersedes the prior IRS guidance. Additionally, similar tax provisions now apply to the EIDL Advance Grants and SBA loan payments. The EIDL Advance Grant and SBA loan payments are tax exempt, and expenses paid on the borrower’s behalf by the SBA are tax-deductible.

Simplified Forgiveness for Loans $150,000 or Less

This bill also includes a simplified forgiveness application process for loans of $150,000 or less. Borrowers will be able to request forgiveness with a one-page form, with no requirement to attach supporting documentation.

EIDL Grants

Entities that received EIDL grants of less than $10,000 will be able to apply for an additional payment to bring the total they receive to $10,000. Additionally, the EIDL advance grant no longer reduces the PPP loan forgiveness.

For more information, we recommend this article issued by the AICPA.

Disclaimer: The information contained in this communication, including attachments and enclosures, is not intended to be a complete analysis of all related issues. Nor is it sufficient to avoid tax-related penalties. It has been prepared for informational purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and Perkins & Company, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.