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Congress Changes Paycheck Protection Program Loans Again to Make Full Forgiveness Easier and More Beneficial

By on March 23, 2021 0

Since the inception of the Paycheck Protection Program (PPP) with the enactment of the CARES Act, we have characterized the PPP as a government grant in the form of a forgivable loan. Congress improved this treatment of grants with the Paycheque Protection Program Flexibility Act (Law on flexibility). The Flexibility Act has now reaffirmed that the adoption of the Consolidated Appropriations Act of 2021 (CAA21), which includes important and beneficial changes to PPP, further demonstrates that Congress’ intention of a PPP loan is, and always has been, a subsidy.1

We have previously discussed overview of these changes and with the passage of the law on the 5500 years and over we can summarize some key changes of the PPP in the CAA21.

Deduction for expenses resulting in forgiveness

After much bipartisan opposition to the IRS ‘categorical position that a PPP borrower cannot claim a deduction for otherwise deductible costs that result in the cancellation of the PPP loan (reviewed in a previous item), Congress has now expressly overruled the IRS’s position. PPP borrowers can claim an otherwise qualifying deduction or other tax benefit (for example, depreciation) for the expenses that result in the cancellation of the PPP loan.

Increased expenses that lead to forgiveness

PPP borrowers could originally get a PPP discount for four types of paid expenses Where incurred during the period covered: salary costs, mortgage interest, rent and utilities. However, some companies have not paid or incurred sufficient repayable costs to obtain full forgiveness of the PPP loan, usually due to the closure or substantial downsizing of operations resulting from the pandemic. To address this issue, Congress added four additional types of reimbursable expenses:

  1. Operating Expenses: defined as “a payment for any business software or cloud computing service that facilitates business operations, delivery of products or services, processing, payment or tracking of payroll expenses, human resources, functions sales and invoicing; or accounting or tracking supplies, inventory, records and expenses.
  2. Costs of property damage: defined as “a cost related to property damage and vandalism or looting due to public unrest in 2020 that was not covered by insurance or other compensation”.
  3. Supplier costs covered: generally includes amounts paid for the supply of goods which are (a) essential to the business and (b) made under a contract, order or purchase in force before the period covered. The scope of supplier costs covered appears to be quite broad and generally appears to include tangible goods such as office supplies, computers, materials resold to customers, etc. However, it is not clear whether the services (for example, legal fees) are considered “products”.
  4. Expenses covered for worker protection: typically includes amounts paid to comply with COVID-19 guidelines for employees working remotely.

In addition to adding these four types of new reimbursable expenses, Congress also changed the definition of “salary costs” to more clearly include group life, disability, vision or dental insurance. We have previously informed our customers that they can include eye and dental insurance as part of their health care benefits. The inclusion of group living and disability was less clear. Even more favorably, Congress added group life, disability, vision and dental insurance to items not subject to the limit of $ 46,154 which otherwise applies to employees (other than owner-employees subject to the special owner limitation. -employee that we have previously discussed).

Second PPP loan

Some businesses may apply for a second conditional repayment PPP loan. Eligibility is limited to businesses with (i) less than 300 employees (including sole proprietorships) that (ii) experienced a 25% or more reduction in their gross revenues during a quarter in 2020 compared to same quarter in 2019. Like the original PPP loan, the amount of the second PPP loan is equal to 2.5 times the 2019 payroll (a borrower can also use 2.5 times the payroll for 1 year before the date of the second PPP loan). However, businesses that use a North American Industry Classification System (NAICS) code starting with 72 (typically hotels and restaurants) can use a multiplier of 3.5. In addition, a second PPP loan is capped at $ 2 million.

Simplified forgiveness request for PPP loans up to $ 150,000

As many of our readers know, completing a PPP loan forgiveness request (Form 3508) can be a difficult and arduous task, especially the ETP calculations. As we have discussed in this item, the SBA has simplified the process for PPP borrowers with PPP loans of $ 50,000 or less. Congress has extended this streamlined process to P3 loans of up to $ 150,000, significantly reducing the administrative burden on the majority of borrowers. We are concerned that some of these borrowers are doomed to future legal challenges because, while they do not have to provide all of the calculations justifying the right to remission in a signed remission request, they must nevertheless certify this right. Accordingly, we recommend that borrowers relying on the streamlined process continue to confirm their entitlement to a full discount and retain their working papers in case the SBA requests documents to support the certifications.

Flexibility to choose the period covered

The Flexibility Act initially extended the period covered for incurring excusable expenses from eight weeks to 24 weeks. However, he still only left borrowers with these two alternative options. Congress has now granted flexibility for the period covered. PPP borrowers can choose a covered period of between eight and 24 weeks from the date of loan issuance. Of course, now that everyone’s 24 week period for the first P3 loan is over, we imagine many borrowers will use a 24 week period to not leave any money on the table. However, borrowers who have undergone significant changes in their business, such as a substantial drop in FTEs at the end of their 24-week coverage period, may find this change extremely beneficial. Likewise, a period covered of less than 24 weeks can have an impact on the way in which the company answers the uncertainty certification questionnaire (SBA Form 3509 (For Profit Borrowers) Where (Non-profit borrowers)). Additionally, we expect many people who get a second PPP loan to take advantage of this flexibility.

Increase in previous PPP loan

PPP rules have changed over time, sometimes making things more restrictive and sometimes relaxing those restrictions. For example, on April 23, the Small Business Administration (SBA) updated the PPP Loan FAQs add FAQ 31, which reinterpreted the uncertainty certification and invited all PPP borrowers repay their PPP loan without asking questions before May 7 (extended later until May 14). Many PPP borrowers with PPP loans less than $ 2 million have repaid their PPP loan due to concerns about the certification of uncertainty. However, on May 13, the SBA added FAQ 46 which, in part, considered that any PPP borrower with a loan of less than $ 2 million had made the uncertainty certification in good faith. A similar problem arose for partnerships, many of whom applied for a PPP loan without including partner remuneration, only to learn later that the SBA interpreted labor costs to include partner remuneration. Congress has asked the SBA to issue rules within 17 days of the enactment of the Consolidated Appropriations Act to allow borrowers to receive an increase in their PPP loan. This increase will only be available to borrowers who have not had their PPP loan forgiveness (it will be available to borrowers who have submitted a PPP loan forgiveness request, as long as the SBA has not acted on this request. ).

Extension of eligibility for PPP loans

Congress expanded the list of eligible businesses to include Section 501 (c) (6) businesses (such as chambers of commerce) with no more than 300 employees, subject to limitations for 501 (c) businesses. (6) which cross certain lobbying thresholds. Congress also clarified that individual stations, newspapers and public broadcasters with no more than 500 employees are generally eligible.

Repeal of forgiveness reduction for EIDL Advance

The CARES Act reduced the cancellation of the PPP loan by the amount of a Natural Disaster Emergency Loan Advance (EIDL) received by the borrower. As we have discussed in this item, the ASB indicated in the Provisional final rule on the PPP loan forgiveness process that “the SBA will deduct the EIDL advance amounts from the forgiveness amount remitted to the lender, as required by section 1110 (e) (6) of the CARES Act. Congress repealed this reduction in PPP loan forgiveness.

The Consolidated Appropriations Act requires the SBA to promulgate regulations to effect changes made to the PPP by the Consolidated Appropriations Act “[n]no later than 10 days after the date of promulgation. As a result, we expect a flurry of new regulations, similar to what we’ve seen over the summer. Stay tuned.