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Last night, December 21, 2020, Congress passed the “Coronavirus Response and Relief Supplemental Appropriations Act.” Embedded in this massive relief bill was the “COVID-Related Tax Relief Act of 2020,” which included the following:
- We have been patiently waiting for Congress to address the IRS ruling that payroll and other “covered expenses” paid with your Paycheck Protection Program (PPP) loan would not be deductible in determining your 2020 taxable income. Last night, Congress reversed that IRS decision, allowing expenses paid with PPP loan proceeds to be deductible in determining your taxable income. Here are the major points:
- If your PPP loan is forgiven, the amount forgiven is not to be included in your taxable income.
- The payroll and other “covered” expenses that were paid with your PPP loan proceeds will be tax deductible, thereby eliminating any taxability of the PPP loans and clarifying Congress’ intent that the PPP forgivable loans be tax free.
- While the income from PPP forgiveness is not included in income, for pass-through entities, such as partnerships and S corporations, there will be a basis increase for the non-taxable income, which eliminates the possibility that a loss created by the deductibility of the PPP expenses would be limited due to insufficient tax basis.
- The newly passed legislation allows for a second round of PPP loans – forgivable, just like the first round – for businesses meeting the following requirements:
- The business has no more than 300 full-time equivalent employees.
- The gross receipts of the business for any quarter during 2020 have no less than a 25% reduction from the same quarter in 2019. In other words, if your gross receipts for any quarter in 2020 have a 25% or more reduction as compared to the same quarter in 2019, you may qualify for a second PPP forgivable loan.
- The maximum second round PPP loan is the lesser of 2.5 times your average monthly payroll (at your election, the payroll for the past 12 months immediately prior to requesting the second PPP loan or average monthly payroll for 2019), or $2,000,000. For businesses with NAICS codes beginning with 72 (which are restaurants, hotels, bars, food service businesses that have been hit particularly hard), the payroll multiplier is 3.5 times average monthly payroll, up to the $2,000,000 PPP loan limit.
- Lastly, for original PPP loans and second round PPP loans of $150,000 or less, there is a simplified method for applying for forgiveness. It seems that loans under $150,000 will be automatically forgiven after the business owner makes certain certifications with no needed documentation.
This is great news for business owners who were facing a large tax bill due to the prior non-deductibility of PPP-related expenses and for those needing additional assistance. The legislation must now be signed into law by the President, and the SBA must create new application steps to move forward with the second round of loans.
If you need assistance applying for the second round of PPP loans or calculating and applying for forgiveness for your original PPP loan, the Moore Colson team is here to help. Click here to contact us. We expect important updates to this new stimulus package, so be sure to subscribe here to get our news and alerts as they are released.
Bert Mills, CPA, is the Managing Partner at Moore Colson. In his role, Bert sets the vision and mission of the Firm and works closely with the Firm’s leadership to drive and implement strategies.
Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting and multi-generational planning with a focus on the construction, professional services and staffing industries.
Chris Arnone, CPA, is a Partner and Business Assurance Practice Leader at Moore Colson. Chris has over 20 years of experience providing audit, accounting and consulting services for companies in the transportation, manufacturing, distribution, staffing, private equity and venture capital industries.
Tyler Wright, CPA/ABV/CFF, CFE, is a Director in the firm’s Consulting Practice. Drawing on 15 years of experience as an external auditor, internal auditor, and forensic accountant, Tyler provides accounting and financial advice in forensic investigations and commercial disputes.