Congress reached an agreement on Sunday, December 20, 2020 on new stimulus legislation – the Emergency Coronavirus Relief Act of 2020. If press reports are to be believed, it would provide $900 billion of stimulus and most important for PPP borrowers, it would reverse legislatively the IRS position that expenses relating to PPP loan forgiveness are not deductible.
The IRS outlined its position in April and November of this year in Notice 2020-32, Rev. Rul. 2020-27, and Rev. Proc. 2020-51. This is a great relief to PPP borrowers who will no longer be subject to tax on their PPP loan forgiveness amounts. It also would provide a greatly simplified loan forgiveness application procedure for loans under $150,000, and limited relief for loans between $150,000 and $2 million.
As an update to a previous discussion that the IRS confirmed the PPP loan forgiveness were taxable in 2020.
The bill also would provide $20 billion for targeted grants through the economic injury disaster loan (EIDL) program.
The bill would provide for a new, more targeted, round of PPP loans, with total funding of about $284 billion. Here are some of the key terms regarding the new PPP:
- Loan amount would be 250% of average monthly payroll with a maximum loan size of $2 million (rather than $10 million in round one);
- Applies to borrowers with 300 employees or less (as opposed to 500 in round one), and alternative size standards apply;
- Borrowers must demonstrate a 30% reduction in gross revenue in either Q1, Q2 or Q3 of 2020 as compared to the same quarter in 2019;
- Borrower must certify as to loan necessity (same as in round one); and
- Broader scope on use of funds to include certain PPE and other items.
More to come on the full scope of this bill as the legislative text is published.