Brian A. Haskel, Alan E. Sherman, Jason L. Sobel, Lori M. Waldron
January 07, 2021
This alert updates, clarifies and supersedes all prior
publications and communications from our firm with respect to the Paycheck
Protection Program and other lending programs made available by state and
federal governments in response to the COVID-19 pandemic. It is likely that there will be guidance in
the coming weeks from the Small Business Administration and other government
agencies that may change or enhance this and prior guidance.
December 27, 2020, President Trump signed into law the Consolidated
Appropriations Act, 2021 (the “Updated PPP Act”), which makes changes to the existing
Paycheck Protection Program (“PPP”) and allocates an additional $284.45 billion
for a second round of PPP loans (the “Second Tranche”). This alert summarizes a number of key
provisions of the Updated PPP Act.
Additional Eligible Borrowers.
Borrowers eligible to receive PPP loans now include housing
cooperatives, news organizations and certain 501(c)(6) organizations (including
destination marketing organizations). Certain
businesses are ineligible for Second Tranche PPP loans, including
publicly-traded entities, companies primarily engaged in political or lobbying
activities, and businesses with certain specified ties to China or Hong Kong.
Expanded Allowable Uses.
Allowable uses of PPP loan proceeds now include (i) insurance payments
made for the provision of group life, disability, vision and dental insurance
benefits within payroll costs, (ii) certain essential covered supplier costs, (iii)
certain operating or capital expenditures related to worker protection, (iv)
certain covered operations expenditures, and (v) costs related to property
damage, vandalism or looting due to public disturbances that occurred during
Eligibility for Second Tranche
Loans. In order to be eligible
for a Second Tranche PPP loan, a borrower generally must (i) have no more than
300 employees, (ii) have been operational on February 15, 2020, and (iii)
demonstrate a 25% reduction from gross receipts during the comparable quarter
in 2019 (or 2020, as applicable).
The maximum loan amount available to a Second Tranche borrower is $2
million (reduced from the $10 million cap for a borrower under the original PPP
loan program). A Second Tranche PPP loan
borrower may receive an amount up to 2.5 times its average total monthly
payroll during (i) the one-year period prior to the date the loan is made or
(ii) calendar year 2019, except that the 2.5 multiplier is increased to 3.5 for
restaurants and hotels.
Covered Period. A borrower may now select a covered period during which to
spend the PPP loan proceeds that is no less than 8 weeks and no greater than 24
A borrower that receives $150,000 or less in PPP loan proceeds may now apply
for forgiveness by submitting a one-page certification to its PPP lender. A borrower that receives a PPP loan of more
than $150,000 must provide the same documentation required for loan forgiveness
under the original PPP loan program.
The forgiveness of PPP loans will
not be included as taxable income. Expenses paid with the proceeds of a PPP loan
that are forgiven are now tax-deductible. This reverses previous guidance from the
Treasury and IRS, which did not allow deductions for such expenses.
The Updated PPP Act provides that
to the extent that any PPP loans made to a partnership or S corporation are
forgiven, such amounts are treated as tax-exempt income which increases the
outside tax basis of a partner’s interest in the partnership and an S
corporation’s shareholder’s tax basis in the shareholder’s stock.
A business that received a PPP
loan prior to the enactment of the Updated PPP Act was not eligible for the
employee retention payroll tax credit as enacted under the CARES Act. The
Updated PPP Act revises the existing rules by now allowing PPP borrowers to
claim such employee retention payroll tax credit which is also extended with
regard to wages paid through June 30, 2021.
However, wages used in claiming the employee retention payroll tax
credit are excluded from payroll costs which are eligible to be forgiven if
paid from PPP loan proceeds.
PPP Borrowers in Bankruptcy.
In a small business bankruptcy case, a debtor in possession or a trustee
that is authorized to operate the business of the debtor may now obtain a PPP
loan. These loans will be entitled to “superpriority”
administrative expense claim status in the bankruptcy case. To the extent that all or any part of the
loan is not forgiven, a plan of reorganization may be confirmed only if the
plan provides for payments on account of such claim when due under the terms of
the loan giving rise to such claim.
Audit. The Updated PPP Act appropriates $50
million to the SBA for auditing and fraud mitigation purposes.
EIDL Advance Deduction. The amount of a borrower’s PPP loan that is forgiven will no longer be
reduced by the amount of any EIDL advance received by such borrower.
Returned Loans. If a
borrower returned a portion of, or did not accept the maximum amount of, the
original PPP loan for which it was eligible, such borrower may apply to receive
up to the maximum amount that was available to it so long as such borrower had
not received forgiveness of its loan as of the date the Updated PPP Act was
This Client Alert has been prepared by Sills Cummis & Gross P.C. for informational purposes only and does not constitute advertising or solicitation and should not be used or taken as legal advice. Those seeking legal advice should contact a member of the Firm or legal counsel licensed in their state. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. Confidential information should not be sent to Sills Cummis & Gross without first communicating directly with a member of the Firm about establishing an attorney-client relationship.