The Paycheck Protection Program (PPP), unveiled this spring by the Treasury and Small Business Administration (SBA) as a result of the CARES Act, came as major relief to businesses and business owners reeling from the effects of the COVID-19 virus, and assisted them in keeping their workforce employed. However, several months later the impact of the virus is still taking a toll on U.S. businesses.

Currently, the White House administration and Congress are working feverishly to release another COVID-19 relief bill prior to the end of the calendar year. While many iterations of the bill exist, the $908 billion Senate Proposal dubbed “Gang of 8”, appears to be gaining noticeable traction.

PPP Loans – Round Two

Under the Senate’s current proposal, the Treasury and SBA would provide a second round of PPP Loans to business with 300 or fewer employees and have seen a 30% revenue loss in any quarter in 2020. Further, the current proposal would also allow borrowers who did not apply in the spring for the first round of PPP Loans to be eligible to apply this time around.  501(c)(6) organizations (local chambers of commerce, tourism) with 150 or fewer employees would now also be eligible to apply for a PPP loan as well.

The proposal indicates the loan amount being equal to 2.5 times the average total monthly payroll costs, with a maximum loan amount for round two of $2 million. Eligible expenses are expanded to include PPE and costs to comply with COVID-19 federal health and safety guidelines.

Tax Deductibility

A highly sought component to a second round of COVID-19 relief is tax deductibility for expenses. Without the passage of a second relief bill to allow deductibility, the expenses claimed by a business in their PPP Loan Forgiveness Application would be ineligible to also be claimed on their tax return, potentially resulting in higher taxes for many taxpayers. Under the current Senate proposal, the plan would allow tax deductibility for expenses claimed on both a second round of PPP Loans and the first round.

Simplified Loan Forgiveness

Under the current Senate proposal, a simplified loan forgiveness application for loans under $150,000 is on the table.  The proposal indicates the one-page form would require business to attest to a good faith effort for compliance with the PPP and report the payroll and covered non-payroll costs the loan was spent on.

What to Do Next

While the above noted items are included in the Senate proposal, nothing is final as of publication of this blog, and this is strictly a proposal. However, businesses that meet the parameters for eligibility for a second PPP Loan should be on alert for guidance as soon as a second COVID-19 relief bill is passed. Assuming a relief bill is passed, the Treasury with SBA will be under immense pressure to try and create the second loan program within a few weeks to get relief funds out to ailing businesses.

For businesses with a current PPP Loan under $150,000, it may be worth considering holding submission of the Loan Forgiveness Application until things become clearer about a potential simplified form.  From early indications, the SBA and many banks have heavily scrutinized PPP Loan Forgiveness Applications submitted to date and requested additional documentation and support.

Lastly, for all businesses, tax deductibility of loan expenses remains a key factor in determining income and calculating 2020 estimated taxes. Stay tuned for how the current Senate proposal proceeds and if passage of a relief bill provides the sought-after tax deductibility.

2020 has certainly been like no other year and tax laws and rules are changing rapidly.  Please contact us for PPP loan forgiveness consulting or planning for a potential second round of PPP loans. We’d be glad to assist you in navigating the everchanging rules and regulations.

Barnes Dennig COVID-19 Advisory Team