It is lastly taking place!

Hundreds of hundreds of small companies and tens of millions of individuals have been ready for a second spherical of Paycheck Protection Program (PPP) loans to maintain companies and professionals operational. The new regulation will assist many of those people and companies, however not all.

This proposed invoice is being enacted to appropriate quite a lot of issues that PPP debtors have had, and likewise opens the door to new alternatives for debtors who weren’t handled as properly underneath the earlier program.

Brandon Ketron CPA, J.D. LL.M., and I will probably be giving a free webinar outlining this stuff Tuesday, December twenty second at 9 AM EST, electronic mail the topic line “Round 2” to for an invitation.

While the official language Congress will vote on hasnt but been launched, the first adjustments that have been within the invoice as of earlier this week are as follows:

PPP Loans Which are Forgiven Will Be Deductible

The IRS has issued a sequence of Revenue Procedures and Notices that alarmed many PPP debtors by stating that bills paid for with forgiven loans will be unable to be deducted.  This was towards Congresss intent, and the proposed invoice clarifies their place.  The proposed invoice states as follows:

(2) no deduction shall be denied or diminished, no tax attribute shall be diminished, and no foundation enhance shall be denied, by cause of the exclusion from gross earnings offered by paragraph (1)

It must be famous that, in keeping with the Wall Street Journal, one GOP assist has apparently mentioned that there can be restrictions on these deductions, however we might want to wait till the complete textual content of the invoice is launched to see what these limitations may embrace.

The which means of this language and its implications for debtors are mentioned within the weblog I’ve posted at present entitled PPP Borrower Tax Relief Under Stimulus Bill Its Finally Happening.

Eligible Entities Have a Second Chance to Receive a PPP Loan

Many debtors have requested a second spherical of PPP loans, and lots of potential debtors who have been unable to obtain a PPP mortgage through the first spherical wish to have entry to a PPP mortgage.  The proposed invoice permits new and outdated debtors to obtain a PPP mortgage in the event that they meet the necessities of an eligible entity.  

An eligible entity might want to fulfill the Necessity Test that’s mentioned in my weblog publish dated May 4, 2020 Was Your PPP Loan Necessary? If Not, There Could Be Horrific Repercussions as of the time of making use of for this new second mortgage.  This check, which is predicated upon whether or not the mortgage is important to help the on-going operations of the applicant will probably be arduous to satisfy by companies which have survived one or two arduous quarters however at the moment are making ends meet whereas ready for the vaccines to clear our financial system up.  The check will clearly not be handed by a excessive share of PPP debtors who will in any other case qualify, and can current an important problem to be rigorously addressed with the debtors CPA, monetary and authorized advisors.  While the SBA has introduced that it’s going to not query the need problem for many who have combination borrowings not exceeding $2 million, different businesses, and even whistleblowers, could, and the truth that a second mortgage has been acquired won’t be stored confidential.     

Assuming that the need check will probably be met, the following query is whether or not the PPP borrower is an eligible entity which the invoice defines as a Schedule C taxpayer (however apparently not a Schedule E landlord or a Schedule F farmer), an LLC or different entity handled as an S company or partnership that meets the next necessities:

  1. The borrower should reveal that there was a 30% discount from the gross receipts of the entity throughout the identical quarter in 2019.
  2. For the needs of this 30% rule, gross receipts will embrace all revenues from the traditional operation of the enterprise earlier than subtraction of bills however won’t embrace quantities borrowed, together with quantities acquired for PPP loans. 
  3. The borrower should make use of not more than 300 workers, or meet another dimension customary.

The proposed Rubio-Collins invoice (HEALS Act) that didn’t move, would have required a 50 % discount from gross receipts, so this modification to 30 % within the Emergency Coronavirus Relief Act of 2020″ will enable PPP loans to achieve a better variety of potential debtors.   

For functions of the above 30% discount in gross receipts check, debtors who weren’t in enterprise through the first, second, or third quarter of 2019 (January 1 – September 30), however have been in enterprise through the fourth quarter of 2019 (October 1 – December 31), can examine the primary, second, or third quarter of 2020 (January 1 – September 30) to the fourth quarter of 2019.  

If the entity was not in enterprise throughout 2019 however was in enterprise by February 15, 2020, then such borrower can examine their gross receipts through the second or third quarter of 2020 (April 1 – June 30) to the primary quarter of 2020 (January 1 – March 30) to see in the event that they qualify.

Maximum Amount of New PPP Loans For Seasonal Employers, New Entities, and Businesses With More Than One Physical Location

For seasonal employers, the utmost quantity of latest PPP loans is predicated upon the common month-to-month payroll prices for a 12-week interval chosen by the borrower that begins February 15, 2019 or March 1, 2019 and ends June 30, 2019. Alternatively, the borrower could elect to make use of any consecutive 12-week (any 96 consecutive days) interval starting after February 14, 2020 and ending earlier than January 1, 2021) multiplied by 2.5, however not exceeding $2 million. 

For new entities, the utmost quantity of latest PPP loans is predicated upon the common month-to-month payroll prices up via the date when the entity applies multiplied by 2.5, however not exceeding $2 million. 

For companies with multiple bodily location, the utmost quantity of latest PPP loans is acknowledged as follows:

(I) the entire quantity of all lined loans shall be no more than $2,000,000; and 

(II) in making use of this paragraph, the Administrator shall substitute no more than 300 workers per bodily location for the time period no more than 500 workers per bodily location in paragraph (36)(D)(iii). 

Borrowers Owned 20% or More by Chinese Entities Are Unable to Receive a Second PPP Loan

Publically traded companies and entities affiliated with the Peoples Republic of China are on the checklist of entities that can’t qualify for a brand new PPP mortgage.  The proposed invoice is acknowledged as follows:

(AA) for which an entity created in or organized underneath the legal guidelines of the Peoples Republic of China or the Special Administrative Region of Hong Kong, or that has vital operations int eh Peoples Republic of China or the Special Administrative Region of Hong Kong, owns or holds, immediately or not directly, not lower than 20 % of the financial curiosity of the enterprise concern or entity, together with as fairness shares or a capital or revenue curiosity in a restricted legal responsibility firm or partnership; or 

(BB) that retains, as a member of the board of administrators of the enterprise concern, an individual who’s a resident of the Peoples Republic of China

It is fascinating that the Peoples Republic of China is the one restricted nation included within the proposed invoice, not North Korea, Iran, Russia, or different adversarial nations. 

Additional Loans Cannot Exceed $2,000,000 per Borrower90 Day Wait Between Loans

The mortgage quantities for a overwhelming majority of debtors will probably be virtually an identical to what the borrower acquired for his or her authentic PPP mortgage.  This second spherical of funding, nevertheless, is capped at $2 million per borrower slightly than $10 million underneath the preliminary spherical of PPP loans within the CARES Act.  For debtors who acquired a PPP mortgage throughout the final 90 days, the proposed invoice requires that the mixture of the brand new and outdated mortgage not exceed $10 million. 

No Enforcement Action Against Banks

The proposed invoice gives that there will probably be no enforcement motion with respect to lenders.  The invoice states as follows:

(2) NO ENFORCEMENT ACTION.With respect to a lender that depends on the certifications and documentation described in paragraph (1) referring to a lined mortgage

(A) no enforcement or different motion could also be taken towards the lender referring to mortgage origination, forgiveness, or assure of the lined mortgage primarily based on such reliance, together with claims underneath

(i) the Small Business Act (15 U.S.C. 631 et seq.);

(ii) sections 3729 via 3733 of  title 31, United States Code (generally often called the False Claims Act);

(iii) the Financial Institutions Reform, Recovery, and Enforcement Act (Public Law 10173);

(iv) part 21 of the Federal De10 posit Insurance Act (12 U.S.C. 1829b), chapter 2 of title I of Public Law 91508 (12 U.S.C. 1951 et seq.), and subchapter II of chapter 53 of title 31, United States Code (collectively often called the Bank Secrecy Act); or

(v) every other Federal, State, or different felony or civil regulation or regulation; and

 (B) the lender shall not be topic to any penalties referring to mortgage origination, forgiveness, or assure of the lined mortgage primarily based on such reliance.

This invoice additionally gives that lenders will probably be compensated by the Administrator of the SBA.  The invoice states as follows:

(J) REIMBURSEMENT FOR LOAN PROCESSING AND SERVICING.The Administrator shall reimburse a lender approved to make a lined mortgage in an quantity that’s

(i) 3 % of the principal quantity of the financing of the lined mortgage as much as $350,000; and

(ii) 1 % of the principal quantity of the financing of the lined mortgage above $350,000, if relevant.

Anti-Bankruptcy Rules Will Continue To Apply 

Borrowers in chapter will be unable to use for a PPP mortgage primarily based on the provisions of the proposed invoice.  If within the chapter course of a court docket finds that the debtor is eligible for a PPP mortgage, then the mortgage will probably be given a precedence declare within the chapter course of. 

Simplified Application for Loans Under $150,000

Borrowers who acquired lower than $150,000 in PPP loans through the first spherical will now solely need to submit a one-page utility for forgiveness, however the entire similar guidelines apply.  The signer of this utility could as properly signal the longer utility to make it possible for they’ve all the things finished proper as a result of private legal responsibility could be monumental.  Our advice is that purchasers seek the advice of with their CPAs rigorously and fill out the lengthy utility however truly submit the quick utility, with their solutions within the lengthy utility being stored in case they’re ever investigated.  

The proposed invoice states as follows:

(A) IN GENERAL.Notwithstanding subsection (e), with respect to a lined mortgage made to an eligible recipient that’s not greater than $150,000, the lined mortgage quantity shall be forgiven underneath this part if the eligible recipient submits to the lender a one-page on-line or paper kind, to be established by the Administrator not later than 7 days after the date of enactment of the Continuing the Paycheck Protection Program Act, that attests that the eligi1ble recipient complied with the necessities underneath part 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)).

Changes to the Application Process for Forgiveness of Loans Between $150,000 and $2,000,000

In regards to the mortgage forgiveness utility for lined loans between $150,000 and $2,000,000, the proposed invoice states as follows:

(A) IN GENERAL.Notwithstanding subsection (e), with respect to a lined mortgage made to an eligible recipient that’s greater than $150,000 and less than $2,000,000

(i) the eligible recipient searching for mortgage forgiveness underneath this part

(I) will not be required to submit the supporting documentation described in paragraph (1) or (2) of subsection (e) or the certification described in subsection (e)(3)(A);

(II) shall retain

(aa) all employment information related to the applying for mortgage forgiveness for the 4-year interval following submission of the applying; and 

(bb) all different supporting documentation related to the applying for mortgage forgiveness for the 3-year interval following submission of the applying; and

(III) could full and submit any kind associated to borrower demographic info;

(ii) evaluate by the lender of an utility submitted by the eligible recipient for mortgage forgiveness underneath this part shall be restricted as to if the lender acquired an entire utility, with all fields accomplished, initialed, or signed, as relevant; and

(iii) the lender shall

(I) settle for the applying submitted by the eligible recipient for mortgage forgiveness underneath this part; and

(II) submit the applying to the Administrator.

PPP Borrowers Can Select Covered Period for as Short as 8-Weeks and as Long as 24-Weeks

Borrowers at the moment are in a position to decide on the 8 to 24 week lined interval throughout which the borrower is required to spend a adequate quantity on certified bills to obtain forgiveness.  This begins the day the borrower acquired the funds and ends on any day chosen by the borrower, however no sooner than 8-weeks from the date the mortgage proceeds are acquired and no later than 24 weeks after such date of origination. 

This change will allow debtors to chop off the testing interval earlier than making a discount in workforce that will trigger the relevant discount in workforce penalties to use, so long as the workforce is at its pre-February 15 ranges on the final day of the Covered Period.  The invoice states as follows:

(4) the time period lined interval means the interval

(A) starting on the date of the origination of a lined mortgage; and

(B) ending on a date chosen by the eligible recipient of the lined mortgage that happens through the interval

(i) starting on the date that’s 8 weeks after such date of origination; and

(ii) ending on the date that’s 24 weeks after such date of origination;

Expanded Eligibility for 501(c)(6) Organizations

Organizations which can be categorized as a 501(c)(6) can have expanded eligibility to PPP loans.  A 501(c)(6) is outlined as follows:

(6) Business leagues, chambers of commerce, real-estate boards, boards of commerce, or skilled soccer leagues (whether or not or not administering a pension fund for soccer gamers), not organized for revenue and no a part of the online earnings of which inures to the good thing about any non-public shareholder or particular person.

The invoice states as follows concerning 501(c)(6) eligibility:

(I) IN GENERAL.Except as offered in subclause (II), any group that’s described in part 501(c)(6) of the Internal Revenue Code and that’s exempt from taxation underneath part 501(a) of such Code (excluding skilled sports activities leagues and organizations with the aim of selling or collaborating in a political marketing campaign or different exercise) shall be eligible to obtain a lined mortgage if

(aa) the group doesn’t obtain greater than 10 % of its receipts from lobbying actions;

(bb) the lobbying actions of the group don’t comprise greater than 10 % of the entire actions of the group; and

(cc) the group employs no more than 150 workers.

The New Kid on the BlockTargeted EIDL Program For Businesses Hardest Hit by the Coronavirus

The proposed invoice is reportedly making a focused EIDL program to help companies that have been hardest hit by the financial impacts of the Coronavirus.  The EIDL program was initially enacted a few years in the past to offer loans to companies which have suffered from main storms, droughts, and different federally-declared disasters.  EIDL loans bear curiosity at 3.75% and include vital mortgage program necessities that only a few debtors are conscious of or have thought of. 

Businesses that obtain EIDL loans are unable to pay a number of issues with out SBA approval, together with paying dividends, paying bonuses to any workers, together with non-owners, and utilizing EIDL funds for something aside from enterprise functions. 

EIDL debtors should preserve information of how the EIDL mortgage is spent, and supply this info to the SBA inside 90 days after the mortgage is repaid.  There is a scarcity of privateness for the borrower of an EIDL mortgage, and the mortgage particulars can be found to the general public due to the Freedom of Information Act, enumerated at 5 U.S.C. 552.  While these loans can save companies, homeowners ought to converse with their advisors earlier than making a choice to take these loans, and lots of debtors will probably be properly suggested to pay their loans again whereas they will, particularly if they could find yourself in chapter and thus scrutinized by the Department Of Justice and different federal businesses who frequent the chapter courts.  

The time period lined entity for the focused EIDL program is acknowledged as follows:

(i) means any entity that, through the lined interval, is eligible for a mortgage made

underneath part 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)) (as expanded underneath part 1110(b) of the CARES Act (15 U.S.C. 9009(b))), if that


  (I) has no more than 25 workers; and

  (II) has suffered an financial lack of not lower than 30 %; and

(III) besides with respect to an entity included underneath part 123.300(c) of title 13, Code of Federal Regulations, or any successor regulation, doesn’t embrace an agricultural enterprise.

The quantity of funding {that a} lined entity is eligible for within the focused EIDL program is acknowledged as follows:

(A) IN GENERAL.The quantity of funding offered to a lined entity that submits a request underneath paragraph (2) shall be in an quantity that’s the lesser of

(i) the quantity of working capital wanted by the lined entity for the 180-day interval starting on the date on which the lined entity would obtain the funding, as decided by the Administrator utilizing a strategy that’s an identical to the methodology utilized by the Administrator to find out working capital wants with respect to an utility for a mortgage submitted underneath part 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)); or

(ii) $50,000.

The precedence for the focused EIDL program is as follows:

(8) PRIORITY.During the 56-day interval starting on the date of enactment of this Act, the Administrator could approve a request for funding underneath this subsection provided that the request is submitted by

(A) a lined entity positioned in a low-income group;

(B) a lined entity owned or managed by a veteran or a member of the Armed Forces; or

(C) a lined entity owned or managed by an economically deprived particular person or a socially deprived particular person.


This proposed invoice will present a lot wanted reduction to small companies affected by the Coronavirus.  There are positive to be adjustments and corrections in interpretation and which means, and quite a few SBA pronouncements that observe, however I will probably be working day and night time to maintain you posted and help the wants of advisors who should give their purchasers good recommendation on how these guidelines work and what to do subsequent to maximise correct advantages and make correct monetary, tax and enterprise choices.

Please watch out on the market!