HVAC contractors and other business owners who received forgivable Paycheck Protection Program (PPP) loans in 2020 waited up to several long months to hear someone in authority utter 30 words.
“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 paragraph (1).”
Such a passage would allow an unusual “double-dip” for borrowers: Not only would the proceeds of a forgiven PPP loan be tax-free, but in a break with standard Treasury policy, typically tax-deductible expenses would also remain deductible even if paid for with PPP funds.
The U.S. Treasury never did issue such a clarification, contrary to the wishes of PPP borrowers and the stated intent of multiple legislators who had written the original law.
But in the waning hours before Congress adjourned for the holidays, the House and Senate came through with that magic phrase, buried in Section 276 of the Consolidated Appropriations Act, 2021 (PDF). The bill has now been sent for President Trump’s signature.
Congress applied this fix of sorts as part of a new round of COVID-related relief and economic stimulus. Congressional Democratic and Republican leaders attached that package to a huge traditional omnibus spending authorization, in part for expedience and perhaps in part to help ensure its passage.
It’s Easier To Forgive (For Some)
The new legislation’s PPP-related content did not stop with the permission to double dip. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act tucked further in the bill contained a pair of relevant initiatives.
The first was language that simplifies the PPP loan forgiveness process for loans of no more than $150,000. Borrowers of such loans may now submit a one-page application stating:
- The number of employees the employer was able to retain because of the loan.
- The estimated amount spent on payroll costs during the relevant period.
- The total loan value.
That information should be the extent of the requirement for borrowers of $150,000 or less who provide that much and retain normal records to verify compliance.
A New Round Of PPP
The new Act also authorizes $284 billion in new PPP funding, both for loans to new borrowers and for second draws by previous PPP participants. However, the law attaches some strings that were not present on earlier rounds of funding.
This time around, a borrowing company may not employ more than 300 people, with the exception that those with multiple location may employ up to 500 people.
The most critical new requirement has to do with a company’s recent financial performance. The applicant must submit records to demonstrate at least one quarter where gross receipts dropped by at least 25% compared to the same quarter in 2019.
The quarter in question should be one of the first three quarters, according to the legislation, unless the loan application is taking place on or after Jan. 1, 2021, in which case the applicant can cite fourth-quarter numbers.
The maximum loan amount has changed as well, lowering from the original $10 million down to $2 million. That sum will only be available if a company maxes out a primary formula that takes the average monthly payroll over a 12-month period and multiplies by 2.5 to determine the loan amount. Or put another way, borrowers may apply for roughly 10 weeks of payroll support.
The latest pool of PPP funds includes several carve-outs for specific types of borrowing businesses. Examples include $25 billion for companies with not more than 10 employees and/or in cases where the loan is no more than $250,000 and to borrowers in low- to moderate-income neighborhoods.
Twenty-five million dollars is earmarked for a program to aid minority business enterprises in dealing with the pandemic through available channels, and $50 million is assigned to fund auditors for PPP loan activity. Another $35 billion is reserved for first-time PPP borrowers.
As always, contractors should consult their accountants and any other professionals to verify the contents of a law this complex and to discuss other potential opportunities or obligations within the law not mentioned in this space.
More politically minded contractors or industry associations should also keep in mind that the legislation specifies that no PPP funds may be used for lobbying activities.
Liability Left Out
One popular topic prominent in its absence from this bill was liability protection for employers with regard to COVID-related lawsuits. This protection had been and remains a priority for HVAC industry groups and Senate Majority Leader Mitch McConnell.
However, with multiple legislative clocks ticking and pandemic damage accumulating nationwide, the two parties agreed to table their own more contentious priorities in order to pave the way for a broader deal. Republican leadership set aside the liability protections while Democratic leaders backed off their insistence on additional support for state and local governments.
The decision to not deal with these topics may increase the odds of future attempts, successful or otherwise, to find common ground on additional COVID-related legislation in the new year.