The new COVID relief bill that was passed by Congress last night has addressed some key PPP loan issues and concerns. Most importantly, expenses paid for with forgiven PPP funds WILL be deductible! Please see below for important implications resulting from the new bill.
Tax deductibility for PPP expenses
To the great relief of many business owners is that the legislation, which is being referred to as PPP2, ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans. It also provides fresh PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses facing severe revenue reductions the opportunity to apply for a second loan.
PPP2 specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what many have argued was Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The bill clarifies that “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 Section 1106 of the CARES Act (which has been re-designated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
Some other key provisions in the bill include:
• $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
• $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
• $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
• $25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
• $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.
• $82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and $10 billion in child care assistance.
• $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
• $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
• $7 billion for broadband expansion.
The bill also extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
For more information about eligibility and loan terms please click here.
*Resource: The Journal of Accountancy, Jeff Drew, 12/21/2020
As more information is released we will continue to keep you informed.