The $900 billion stimulus bill recently passed by Congress (but that may not be signed by President Trump) includes some important changes for businesses regarding the Paycheck Protection Program (PPP) loan. So we present here some new rules which would go into effect if the bill becomes law.
The new PPP rules were noted by Forbes in an article by attorney Alan Gassman, who also held a virtual seminar Monday, which we attended. The same new rules may be found in an article by Entrepreneur magazine.
The PPP loan is tax deductible. But previously, the IRS said that expenses paid for with forgiven loans cannot be deducted. The new proposed bill says the expenses may be deducted, said Gassman, (although there may be some restrictions on this, and there has been pushback on this in the media, so we will see what transpires).
With the new round of stimulus, you can apply for a second PPP loan, even if you received one earlier this year. And if you’ve never applied, you can apply for a first time PPP loan. Applicants for the second PPP (called a second draw PPP), should make sure you meet the eligibility requirements, which include that the borrower must show that there was a 25 percent reduction in gross receipts from the same quarter in 2019. You can pick any of the first three quarters this year, including the April to June quarter as long as you are comparing it to the same quarter a year ago. (If you received a PPP loan in the quarter, you don’t have to count that in your gross receipts). There are many alternate rules for those who can’t compare to the previous quarter as noted by Forbes.
Here is a list of requirements for a second draw PPP according to Gassman:
An “eligible recipient” will be defined as “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 meets the following three requirements:
- Employs not more than 300 employees;
- Has or will use the full amount of their first PPP loan; and
- Had gross receipts during the first, second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter in 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the same quarter in 2019.
- An “eligible recipient” will also still need to satisfy the “Necessity Test”
Necessity Test: As Gassman states, PPP borrowers must certify that the PPP loan is “necessary to support the on-going operations of the applicant.” There is no definition for “necessary,” but Gassman cautions businesses that are doing well to think twice about applying for a second loan. “You must confirm that the loan is necessary to support the ongoing operations of your business. If your business is up and running and you are paying your bills, you don’t qualify for this loan. I would not be taking the new PPP loan if you didn’t need it. The borrowers will be listed and public. The SBA will not challenge you but it doesn’t mean the IRS won’t,” he said during his seminar Monday.
Businesses who received a PPP loan this year that was less than $150K, now only need submit a one-page forgiveness application. If you work with a large bank, most likely you will receive a form from your bank. Still, says, Gassman, the short form is a one page form that you are filling out under penalty of perjury. “You are confirming that everything that would have been in the long form has been handled, so we recommend you fill out the long form and have all your ducks in a row in case the SBA or anyone else comes looking for you.”
By the way, another rule in the new bill–Business meals and beverages will now be 100% tax-deductible if provided by restaurants for 2021 and 2022 tax year.
Again, with President Trump threatening to veto the stimulus bill passed by Congress, we will see if these new rules come into being.
See the full Forbes article here.
See the 30 minute Gassman presentation here.
See slides from the Gassman presentation here.