On Sunday evening, President Trump signed Congress’ joint COVID relief and funding bill (the “Federal Relief Bill”), which makes important changes to many of the existing relief programs created by the CARES Act. Many businesses which have received federal support during 2020 are impacted by the provisions of the Federal Relief Bill.
While regulations still need to be implemented to govern how many of the relief programs will work and to define requirements which will be applicable to parties seeking relief, the text of the bill allows businesses to begin anticipating what relief will be available.
$900 billion of the Federal Relief Bill is a stimulus package designed to support American workers and businesses impacted by COVID-19. Michigan businesses may benefit from the following programs:
1. Paycheck Protection Program (“PPP”)
A) Tax Treatment of Forgiveness of PPP Loans, EIDL Grants, and SBA Principal, Interest, and Fee Payments
Notably, the Federal Relief Bill reverses IRS guidance regarding the deductibility of expenses paid with PPP loan proceeds for existing and future PPP loans. Specifically, the Federal Relief Bill provides that notwithstanding IRS rules which deny deductions, reduce tax attributes, and prevent an increase in basis based on income which is excluded from gross income, that in the case of borrowers who received PPP loans, expenses may still be deducted and tax attributes and basis increases are still permitted to the extent relevant. This is a significant benefit for businesses which will now be able to claim a deduction for expenses paid with PPP proceeds while still excluding PPP income from gross income for tax purposes.
Similarly, businesses which received a grant under the Economic Injury Disaster Loan program or which received SBA assistance in the payment of principal, interest, and applicable fees for an existing or new SBA 7(a) loan will be entitled to exclude the amount of the grant or payments from gross income and will be entitled to take applicable deductions, tax attributes and basis increases.
B) Additional PPP Loans
The Federal Relief Bill appropriates $284 billion to be spread among first and second time loans through the Paycheck Protection Program.
Moving forward, second-time borrowers eligible for a PPP loan are those borrowers which have no more than 300 employees and have experienced one of the following conditions: (i) had a calendar quarter in 2020 where gross receipts were at least 25% less than the same quarter in 2019; (ii) if an entity was not in business at the beginning of 2019, had a calendar quarter during 2020 in which gross receipts were at least 25% less than gross receipts in the third or fourth quarter of 2019; or (iii) if the entity was in business on February 15, 2020 but was not in business in 2019, the business had a calendar quarter during which gross receipts were at least 25% less than the gross receipts during the first quarter of 2020.
New PPP loans have a substantially lower cap, with the maximum amount available to borrowers being $2 million. For most borrowers, the principal amount of their PPP loan will be calculated by multiplying average monthly payroll for the applicable period by 2.5. However, for entities assigned American Industry Classification System Codes beginning with 72, which is places of accommodation and food service, the loan amount will be determined by multiplying average total monthly payroll for the applicable period by 3.5.
Consistent with prior requirements, to qualify for forgiveness, at least 60% of PPP loan proceeds must be spent on payroll costs.
A borrower wishing to apply for a second PPP loan must have used or have planned to use the full amount of its first PPP loan.
Regulations further defining the requirements set forth in the Federal Relief Bill will be published within the next 10 days.
C) Additional Eligible Expenses for PPP Proceeds
Previously, PPP loan proceeds could be used on payroll costs, salaries and commissions which were excluded from payroll costs, mortgage loan interest, rent payments, utility payments, and interest on debt obligations incurred prior to February 15, 2020. The Federal Relief Bill adds four categories of costs which PPP loan proceeds can be used to pay: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
The additional categories are primarily designed to offer relief to businesses from injuries incurred in 2020. Covered Operations Expenses are those expenses for business software or cloud computing services which facilitate various business operations, product or service delivery, payroll, and other related functions. Covered Property Damage is damage incurred due to any looting or vandalism that occurred during 2020 which was not covered by insurance or other compensation. A Covered Supplier Cost is an expenditure made to a supplier of goods that is either essential to the operations of the entity at the time the expenditure is made or which is made pursuant to a contract or purchase order which was in effect prior to the period of the loan, except in the instance of perishable goods, in which case a purchase order may be in effect during the loan period. A Covered Worker Protection Expenditure is an expenditure made to comply with any Federal, State, or local requirements or guidance issued during the COVID-19 emergency, subject to certain exemptions.
The additional eligible expenses apply to PPP loans currently in existence and PPP loans granted in the future, although they do not apply to any PPP loan already forgiven.
D) Additional Eligible Borrowers
The Federal Relief Bill identifies many different types of organizations which are now eligible for a PPP loan, including news organizations, 501(c)(6) nonprofits, and destination marketing organizations.
2. Families First Coronavirus Response Act
The Families First Coronavirus Response Act (“FFCRA”), which is scheduled to expire on December 31, 2020 requires certain employers to provide up to two weeks of paid sick leave at an employee’s regular rate of pay if the employee is unable to work because the employee is quarantined, and/or experiencing symptoms of COVID-19 and seeking a medical diagnosis. An employer is required to provide up to two weeks of paid sick leave at 2/3 of an employee’s regular rate of pay if the employee is unable to work because the employee needs to care for an individual subject to quarantine, needs to care for a child under the age of 18 whose school or childcare provider is closed as a result of COVID-19, or the employer is experience other qualifying conditions. Thereafter, employees are entitled to up to an additional 10 weeks of expanded family and medical leave at 2/3 of the employee’s regular rate of pay if the employee is unable to work as a result of needing to care for a child whose school or childcare provider is closed due to COVID-19. Employers are able to recover the cost of leave pay by means of refundable tax credits.
While the Federal Relief Bill does not extend the requirements under the FFCRA for employers to provide emergency paid sick leave or emergency paid family and medical leave, it does extend the refundable tax credits available under FFCRA meaning employers may choose to continue to offer the leaves to employees and claim the associated refundable tax credits through March 31, 2021.
3. Shuttered Venues
The Federal Relief Bill makes grants available for operators of shuttered venues, including live venue operators, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators or talent representatives. To qualify for a grant, the operator must have been fully operational on February 29, 2020 and have experienced a reduction in gross revenue of at least 25% relative to the same quarter in 2019. Additionally, the operator’s venue must be open or intending to reopen its business. To qualify, operators cannot have more than 500 employees, own or operate venues in more than 10 states, and may not own or operate in more than one country.
The Federal Relief Bill includes a priority system for awarding grants with grants first being awarded to venues with the most significant revenue loss.
Grants for operators in business on or prior to January 1, 2019, will be in an amount equal to 45% of the gross earned revenue of the entity during 2019.
Grant awards may be used on mortgage payments, rent, utilities, worker protection expenditures and payroll costs.
The tax treatment of grants received under this program is the same as the treatment of a forgivable PPP loan.
4. SBA Debt Relief Program
The SBA’s debt relief program, a program under which the SBA pays principal, interest, and fees for certain SBA loans, is being extended as part of the Federal Relief Bill. While terms of the relief available vary based on the specific loan, certain industries such as theatres, hotels, food service, retail stores, beauty salons and others whose operations have been particularly hard hit by the pandemic will be eligible for extended relief.
5. Emergency Injury Disaster Loans
Congress has authorized additional funds to be used in connection with $10,000 grants to be extended to borrowers who apply for an EIDL. EIDL will be targeted for businesses which are located in a low-income community, have suffered an economic loss of greater than 30%, and employ not more than 300 employees. The Federal Relief Bill also provides that the $10,000 EIDL grant will no longer count toward the amount forgiven under any PPP loan.
6. Employee Retention and Rehiring Tax Credit
The Federal Relief Bill extends the employee retention and rehiring tax credit available to businesses which have experienced a full or partial interruption to their operations because of governmental orders or a significant decline in gross receipts so it remains in effect until July 1, 2021. Additionally, in a significant amendment to the CARES Act, the per employee limitation for the employee retention and rehiring tax credit is now $10,000 per quarter rather than $10,000 per year. Employers will now be able to take the credit against 70% of payroll taxes rather than the 50% previously allowed.
7. Fisheries Disaster Assistance
$300 million is appropriated to enhance relief for fisheries bordering the Great Lakes, the Atlantic and Pacific Ocean, and the Gulf of Mexico. $15 million of the appropriated funds are reserved specifically for non-tribal commercial, aquaculture, processor and charter fishery participants bordering the Great Lakes.
The Michigan Legislature also recently passed a COVID relief bill which Governor Whitmer is expected to sign into law. More information will be provided once the final bill is enacted.
All employers, businesses, and other persons are encouraged to contact their Mika Meyers’ attorney or Michael Huff at firstname.lastname@example.org to discuss how to most appropriately use the new relief programs and to assure they remain in compliance with the regulations governing each program.