On Monday evening, both the House and Senate passed the CORONAVIRUS RESPONSE AND RELIEF SUPPLEMENTAL APPROPRIATIONS ACT (“The Act”) as part of the Consolidated Appropriations Act, which provides a wide array of COVID-related relief programs. Amid funding for virus distributions, multiple relief causes, an extension of unemployment benefits, and $600 per person stimulus money, the bill provides $285 billion of funding and direction for a second round of Paycheck Protection Program (PPP) Loans. These “PPP2” loans are again eligible for forgiveness, and the Act made some important changes to the program. PPP2 operates largely the same as the initial round, as created by the CARES Act, in that borrowers can get loans for 2.5 months of their 2019 payroll, and as long as the monies are spent on qualifying expenses – 60% on the payroll – the loans would be forgiven. However, there is some important difference this time around, with many of the adaptations being beneficial to borrowers:

• Deductibility of Expenses: While the loan forgiveness was excluded from income, the Treasury had issued guidance to show that under their view, the expenses paid with PPP proceeds were not deductible. Congress stated earlier this year that this was not their intent, and so they have included in this bill language to ensure that loan forgiveness is excluded AND expenses paid with loan proceeds are deductible. This applies to PPP1 and PPP2 loans.
• Maximum Loan Amount: For PPP2 loans, the maximum loan amount will be $2 million, as compared to the maximum amount of $10 million in PPP1.
• Extra “kicker” for Restaurants and Hospitality Businesses: Because they have been hit the hardest, borrowers in the restaurant and hospitality industries will be able to borrow (and obtain forgiveness) on a larger percentage of their 2019 payroll. The IRS classifies these industries according to the first 2 digits of their NAICS code, with those “NAICS 72 Entities” being eligible for 3.5 x monthly payroll amount.
• Eligibility: To be eligible for a PPP2 loan, the borrower must have 300 or fewer employees and a drop in gross receipts of 25% or more in any quarter of 2020, as compared to the same quarter of 2019. This time around, 501(c)(6) entities can be eligible for a loan, provided that they meet certain restrictions regarding lobbying activities.
• Expansion of Eligible Uses: The initial PPP program allowed recipients to spend loan proceeds on wages, rent, interest, and utilities. PPP2 has expanded the eligible uses to include certain supplier costs that were already under contract, modifications for COVID safety, certain “covered operations” that can include software and adaptations toward a remote workforce, and expansion of the real property to indoor/outdoor facilities. Also, borrowers can use loan proceeds to pay for repairs/restoration due to damages caused by “public disturbances” during 2020. Note: although there are newly allowed uses, the same 60% of payroll threshold still applies.
• Simple Forgiveness: There is to be a new, online, streamlined one-page application for forgiveness available for loans in the amount of $150,000 or less.

The Act, has passed both chambers of Congress on Monday night, awaits the President’s signature, which is expected at some point this week. Selden Fox will continue to stay abreast of the Act and will post additional news as appropriate. If you have questions about the PPP or need assistance with another tax or accounting issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.