PPP - Round 2 and Retroactive Changes
Get Ready for Round 2! The Small Business Administration announced yesterday that the federal Paycheck Protection Program has reopened. Initially, the applicants are limited to smaller, community-based lenders supporting minority owned businesses. The application window for forgivable PPP loans will open to all lenders “shortly thereafter”, expecting to open later this week. The closing date for the new PPP is March 31st. Companies that did not apply and receive a PPP loan will have another chance under the same guidelines as the first round. PPP borrowers may select a covered period any length between eight and twenty-four weeks. In order to be eligible for forgiveness, borrowers will have to spend no less than 60% of their PPP loan funds on payroll over the covered period. The program expanded eligibility to 501(c)(6) organizations. Certain existing PPP borrowers are now eligible to apply for a second round PPP loan. In general, borrowers are eligible if they have:
300 or fewer employees
Used or will use the full amount of their first PPP loan on or before the expected date of the second PPP loan to be disbursed and amounts were used for eligible expenses, and
Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019.
The revenue reduction is calculated by comparing the gross receipts in any 2020 quarter with the applicable quarter in 2019. Or, if the borrower was in existence for all of 2020 and 2019, may calculate the revenue reduction based on the full year.
Retroactive Changes There are several retroactive modifications to the rules applicable to the original PPP loans:
A simplified loan forgiveness application is provided for loans less than $150,000. A one-page forgiveness application will be made available. The application will include a description of the number of employees the borrower was able to retain, the estimated amount of the loan spent on payroll costs and the loan amount. The borrower is required to retain support related to employment for four years as the SBA may review and audit these loans for fraud.
Expense categories have been expanded to include covered operations expense, covered property damage cost, covered supplier cost, covered worker protection expenditures, group life, and disability insurance benefits.
The requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount is repealed.
Congress reverses the IRS position on deductibility of PPP expenses. The expenses paid with the proceeds of a forgiven PPP loan may be deducted for federal tax purposes and a borrower’s tax basis and other attributes will not be reduced as a result of the exclusion of forgiven PPP loan amounts from gross income.
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Stay tuned for future updates as we closely monitor all developments to keep you informed.