Erin Arvedlund
The Philadelphia Inquirer
WWR Article Summary (tl;dr) As Erin Arvedlund reports, “For struggling businesses, a second round of loan money could make the difference between survival and closing up shop.”
Philadelphia
Congress has passed a bipartisan bill offering as much as $267.5 billion more for Paycheck Protection Program loans and $13.5 billion for Economic Injury Disaster Loans.
For struggling businesses, a second round of loan money could make the difference between survival and closing up shop.
The most welcome change? Small business owners who receive PPP loans — whether last round or the next round — can deduct the expenses for which they use loan money on their taxes.
The American Institute of CPAs president and CEO Barry Melancon said this latest COVID-19 Relief Bill provides “much-needed economic relief to struggling businesses by ensuring expense deductibility under the PPP is honored, as was intended by the CARES Act.”
“AICPA has strongly advocated for expense deductibility for PPP loan recipients and considers this legislation a success for hardworking small businesses,” he added.
Many business owners already took out PPP loans earlier this year. The new bill changes some rules about existing PPP loans, according to Justin Elanjian, CPA and partner with Aprio accounting firm. Caveat: These are suggested in draft legislation, and could change if the relief bill passes:
More expenses included in loan forgiveness. New eligible expenses may include operations, property damage costs, supplier costs, and worker-protection expenditures.
Changes to tax implications of PPP funds: Business leaders pushed hard for this fix. Loan forgiveness is non-taxable, and business expenses paid with PPP loan money are tax deductible.
Simplified application for loans under $2 million: Forgiveness of loans up to $150,000 will require a one-page online or paper form with borrower certifications; loans of $150,000 to $2 million may have simplified documentation requirements, as well.
The latest relief bill includes changes that are exclusive to the second round of PPP loans, said David Zalles, a CPA based in Blue Bell.
Additional PPP loan funds made available: $267.5 billion in PPP loan funds would be on offer through the same channels, banks, non-bank lenders and community development finance institutions, plus an additional $13.5 billion for Economic Injury Disaster Loans through the Small Business Administration.
More eligible businesses can apply for PPP funding: A business now needs to employ only 300 workers or fewer, down from 500 in round one; the business gross receipts must have declined by at least 25% in any quarter in 2020 compared with that same quarter in 2019, according to the new legislation.
Calculating the maximum loan amount: The maximum loan equals 2 1/2 months’ worth of the average payroll for the last 12 months.
Based on the framework of the $908 billion COVID economic relief plan, loan amounts “will likely be based on 2.5 months of payroll costs, as in the first round of funding, with a maximum loan amount of $2 million. There are similar allowable expenses with the addition of safety expenditures and a 60%-40% allocation between payroll and nonpayroll costs required for full forgiveness,” wrote the Marcum accounting and tax firm in a Friday note emailed to clients.
The framework also contains another round of funding under the PPP for borrowers who have exhausted the first round of funds. It stipulates that forgivable expenses will include supplier costs and investments in facility modifications and personal protective equipment needed to operate safely.
However, there are some limits:
— Loan cannot exceed $2 million.
— There will be limitations for businesses with multiple locations (aggregated total can’t exceed $2 million).
— Loans for affiliated borrowers cannot exceed $10 million.
Set aside for small entities: $25 billion of the total allotment could be earmarked for businesses with 10 employees or fewer as of Feb. 15, 2020.
New nonprofit and lobbying entities now eligible: 501(c)(6) organizations that were previously ineligible in round one may now be able to borrow in PPP Round Two. These 501(c)(6) organizations are “tax speak” for chambers of commerce; trade associations; real estate boards; professional associations; some sports leagues; boards of trade, and business leagues.
In order to qualify, these must have 150 workers or fewer and less than 10% of their gross receipts must come from lobbying. Also, lobbying can represent no more than 10% of total activities. Under IRS guidelines, these are technically nonprofit entities.
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But unlike 501(c)(3) nonprofits, these can engage in political activities.
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