The US House and Senate have passed a new stimulus bill which has been signed by the President. The new stimulus bill is over 5,500 pages in length. This article will deal with the provisions involving the PPP (Paycheck Protection Plan). The new bill contains provisions dealing with the deductibility of expenses paid with PPP funds. There is little coverage in the press regarding such provision. When the PPP program was first approved, it provided that the loans would be eligible to be forgiven by the SBA and that the forgiveness would not create taxable income. Soon thereafter, the IRS issued Notice 2020-32, which provided that expenses paid with PPP funds would not be deductible. The denial of the deduction had the effect of making the loan taxable.
Section 276 of Division N of the new stimulus bill provides that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income”. The new stimulus bill also reopens the original Paycheck Protection Program with funding of $35 billion. The bill gives PPP borrowers who have not yet applied for forgiveness the option to spend the loan proceeds on four new types of expenses. The four new categories are Covered Operations Expenditures, Covered Property Damage Costs, Covered Supplier Costs, and Covered Worker Protection. The four new expenses are non-payroll costs and under the new bill the total of all non-payroll costs cannot exceed 40 percent of the total costs eligible for forgiveness.
The prior Act provided that only the PPP proceeds paid or incurred during the “covered period” were eligible to be forgiven. The prior Act provided two options for a covered period which was either 8 or 24 weeks. Under the new bill, a borrower can chose any period between 8 and 24 weeks.
Finally, the new bill provides streamlined forgiveness for loans of less than $150,000. Such borrowers will only be required to submit a one-page document to request forgiveness and will only be subject to audit if they commit fraud or use the proceeds for improper purposes.
Under the new round of PPP loans, the borrower must have less than 300 employees and be able to show that the borrower had a 25% drop in gross receipts during a quarter in 2020 compared to the same quarter in 2019. The maximum loan is 2 million.
I encourage you to contact your tax preparer to confirm how the provisions of the new bill apply to your situation.