The Consolidated Appropriations Act, 2021 was approved by Congress on Dec. 21, 2020 and signed into law by President Trump on Dec. 27, 2020.

COVID-RELATED TAX RELIEF ACT OF 2020

TAX TREATMENT Clarified —For purposes of the Internal Revenue Code of 1986—

  1. no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness for a PPP Loan, forgiveness of an EIDL Grant, or for subsidies for certain loan payments paid by the SBA for certain SBA loans already in place and others as stipulated.
  2. no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph 1.
  3. in the case of an eligible recipient that is a partnership or S corporation—
    •  any amount excluded from income by reason of paragraph 1. shall be treated as tax-exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986, and
    • except as provided by the Secretary of the Treasury (or the Secretary’s delegate), any increase in the adjusted basis of a partner’s interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph a. shall equal the partner’s distributive share of deductions resulting from costs giving rise to forgiveness.
  4. EFFECTIVE DATE — The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of the CARES Act.

Economic Aid to Hard-Hit Small Businesses, Non-profits, and Venues Act Paycheck Protection Program Second Draw Loans

Who is eligible?

  • Any business concern, nonprofit organization, housing cooperative, veterans organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative that:
    • employs no more than 300 employees
    • had gross receipts during the 1st, 2nd, 3rd, or 4th quarter of 2020 that can demonstrate a 25% reduction of gross receipts during the same quarter of 2019
    • certain other entities are ineligible as described in 13 CFR section 120.110 (or in any successor regulation, guidance or rule that may be issued by the administrator) other than non-profit businesses or businesses engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs.

As with the first round of PPP loans, full forgiveness requires 60/40 cost allocation between payroll and nonpayroll costs. You must spend at least 60% of the funds on payroll over your covered period, ranging from eight to 24 weeks.

How much can I apply for?

  • Maximum loan amounts – the lesser of the average monthly payment for payroll costs incurred or paid during
    • the 1- year period before the date on which the loan is made or
    • the calendar year 2019
    • multipied by 2.5 not to exceed $2,000,000
  • Seasonal employers maximum loan – the average total monthly payments for payroll costs incurred or paid
    • for any 12 week period between February 15, 2019, and February 15, 2020
    • multiplied by 2.5 not to exceed $2,000,000
  • NAICS 72 Entities – the lesser of the average monthly payment for payroll costs incurred or paid during
    • the 1- year period before the date on which the loan is made or
    • the calendar year 2019
    • multiplied by 3.5 not to exceed $2,000,000
  • For loans up to $150,000, the eligible entity may submit a certification attesting that the eligible entity meets the applicable revenue loss requirement and if the eligible entity submits a certification on or before the date the entity submits an application for forgiveness produces adequate documentation they met such revenue loss standard.
  • Applications can be submitted until March 31, 2021.

What can I spend the money on?

  • All of the same costs as under the original Paycheck Protection Program but adding the following:
    • Operations expenses – means a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses;
    • Property damage costs – means a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
    • Supplier costs – means an expenditure made by an entity to a supplier of goods for the supply of goods that:
      • Are essential to the operations of the entity at the time at which the expenditure is made; and
      • Is made pursuant to a contract order, or purchase order:
        • in effect at any time before the covered period with respect to the applicable covered loan; or
        • with respect to perishable goods in effect before or at any time during the covered period with respect to the applicable covered loan
    • Worker protection expenditures – means an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020, and ending the date on which the national emergency declared by the President under the National Emergencies Act may include the purchase, maintenance, or:
        • Renovation of assets that create or expand—
          • A drive-through window facility;
          • An indoor, outdoor, or combined air or air pressure ventilation or filtration system;
          • A physical barrier such as a sneeze guard
          • An expansion of additional indoor, outdoor, or combined business space;
          • An onsite or offsite health screening capability; or
          • Other assets relating to the compliance with the requirements or guidance
    • Specific group insurance payments for group life, disability, vision, or dental have now been defined to be included as payroll costs (as if part of the CARES ACT)
    • The effective date of these are as if included in the “CARES ACT,” however any loans already forgiven are excluded from these provisions.

How do I go about obtaining Forgiveness?

       Simplified Forgiveness Application

  • For loans not more than $150,000 the loan shall be forgiven if the recipient:
    • signs and submits to the lender a one-page certification requiring:
      • a description of the number of employees the recipient was able to retain because of the loan
      • the estimated amount spent by the recipient on payroll costs and
      • total loan value
    • attests that the recipient has:
      • accurately provided the required certification and complied with requirements
    • records retention supporting the form that proves compliance with the requirements
      • with respect to employment for the 4 year period following submission of the form and
      • with respect to other records for the 3 year period following submission of the form.
    • The Administrator (SBA) may review and audit for loans not more than $150,000
  • For loans, more than $150,000 the recipient shall submit documentation supporting the full-time equivalents, payroll costs, and non-payroll costs.
  • Forgiveness Audit Plan (new provision) – The Administrator (SBA) no later than 45 days of enactment shall submit to the Senate and the House an audit plan detailing reviews and audits of all loans. The audit provision of the act is effective as if included in the CARES ACT and shall apply to any loan made pursuant to the ACTS including forgiveness of such a loan.

For more information on how to apply or if you qualify, please contact a Barnes Wendling advisor today.

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