On December 27, 2020, President Trump signed the 2021 Consolidated Appropriations Act, which also contained the latest stimulus relief bill. Part of that bill was the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venue Act, which made changes to all Paycheck Protection Program (PPP) loans, re-opened the PPP program for new loans, and allowed certain borrowers to obtain a second PPP loan.
This post specifically looks at the changes implemented by the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venue Act (the “Act”) that affects all PPP borrowers. The changes below are based on the text of the Act, and may be further modified or clarified by subsequent regulations or guidance.
Tax Treatment. Most importantly, Section 276 of the Act reverses the prior Internal Revenue Service guidance and provides significant tax relief to all PPP borrowers. Not only does the Act confirm that any cancellation of debt income obtained from forgiveness of the PPP loan is tax exempt (as provided for in the CARES Act), but now any tax deductible expenses used to generate such forgiveness may still be taken to reduce taxable income.
Covered Period Flexibility. Section 306 of the Act provides PPP borrowers with the flexibility of setting the length of the “Covered Period” for purposes of PPP loan forgiveness and FTE representations at any length between 8 and 24 weeks. The Covered Period will begin on the date of the origination of the PPP loan, and end on the date selected by the borrower that occurs between 8 weeks and 24 weeks after origination.
EIDL Advance Does Not Affect Forgiveness. Section 333 of the Act repeals a prior CARES Act provision that said that any forgiveness would be reduced by the amount of the EIDL Advance. We understand that newly processed forgiveness remittances from the Small Business Administration (SBA) already reflect this change, but we are awaiting SBA guidance for how they will handle previous EIDL Advance-based forgiveness reductions.