October 16, 2021

Volume XI, Number 289

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Second Tranche Paycheck Protection Program Funds Authorized by the Consolidated Appropriations Act

This alert updates, clarifies and supersedes all prior publications and communications from our firm with respect to the Paycheck Protection Program and other lending programs made available by state and federal governments in response to the COVID-19 pandemic.  It is likely that there will be guidance in the coming weeks from the Small Business Administration and other government agencies that may change or enhance this and prior guidance.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the “Updated PPP Act”), which makes changes to the existing Paycheck Protection Program (“PPP”) and allocates an additional $284.45 billion for a second round of PPP loans (the “Second Tranche”).  This alert summarizes a number of key provisions of the Updated PPP Act.

  • Additional Eligible Borrowers.  Borrowers eligible to receive PPP loans now include housing cooperatives, news organizations and certain 501(c)(6) organizations (including destination marketing organizations).  Certain businesses are ineligible for Second Tranche PPP loans, including publicly-traded entities, companies primarily engaged in political or lobbying activities, and businesses with certain specified ties to China or Hong Kong.

  • Expanded Allowable Uses.  Allowable uses of PPP loan proceeds now include (i) insurance payments made for the provision of group life, disability, vision and dental insurance benefits within payroll costs, (ii) certain essential covered supplier costs, (iii) certain operating or capital expenditures related to worker protection, (iv) certain covered operations expenditures, and (v) costs related to property damage, vandalism or looting due to public disturbances that occurred during 2020.

  • Eligibility for Second Tranche Loans.  In order to be eligible for a Second Tranche PPP loan, a borrower generally must (i) have no more than 300 employees, (ii) have been operational on February 15, 2020, and (iii) demonstrate a 25% reduction from gross receipts during the comparable quarter in 2019 (or 2020, as applicable).

  • Loan Amount.  The maximum loan amount available to a Second Tranche borrower is $2 million (reduced from the $10 million cap for a borrower under the original PPP loan program).  A Second Tranche PPP loan borrower may receive an amount up to 2.5 times its average total monthly payroll during (i) the one-year period prior to the date the loan is made or (ii) calendar year 2019, except that the 2.5 multiplier is increased to 3.5 for restaurants and hotels.

  • Covered Period.  A borrower may now select a covered period during which to spend the PPP loan proceeds that is no less than 8 weeks and no greater than 24 weeks.

  • Loan Forgiveness.  A borrower that receives $150,000 or less in PPP loan proceeds may now apply for forgiveness by submitting a one-page certification to its PPP lender.  A borrower that receives a PPP loan of more than $150,000 must provide the same documentation required for loan forgiveness under the original PPP loan program.

  • Tax Considerations.

    • The forgiveness of PPP loans will not be included as taxable income.  Expenses paid with the proceeds of a PPP loan that are forgiven are now tax-deductible.  This reverses previous guidance from the Treasury and IRS, which did not allow deductions for such expenses.

    • The Updated PPP Act provides that to the extent that any PPP loans made to a partnership or S corporation are forgiven, such amounts are treated as tax-exempt income which increases the outside tax basis of a partner’s interest in the partnership and an S corporation’s shareholder’s tax basis in the shareholder’s stock.

    • A business that received a PPP loan prior to the enactment of the Updated PPP Act was not eligible for the employee retention payroll tax credit as enacted under the CARES Act.  The Updated PPP Act revises the existing rules by now allowing PPP borrowers to claim such employee retention payroll tax credit which is also extended with regard to wages paid through June 30, 2021.  However, wages used in claiming the employee retention payroll tax credit are excluded from payroll costs which are eligible to be forgiven if paid from PPP loan proceeds.

  • PPP Borrowers in Bankruptcy.  In a small business bankruptcy case, a debtor in possession or a trustee that is authorized to operate the business of the debtor may now obtain a PPP loan.  These loans will be entitled to “superpriority” administrative expense claim status in the bankruptcy case.  To the extent that all or any part of the loan is not forgiven, a plan of reorganization may be confirmed only if the plan provides for payments on account of such claim when due under the terms of the loan giving rise to such claim.

  • Audit.  The Updated PPP Act appropriates $50 million to the SBA for auditing and fraud mitigation purposes.

  • EIDL Advance Deduction.  The amount of a borrower’s PPP loan that is forgiven will no longer be reduced by the amount of any EIDL advance received by such borrower.

  • Returned Loans.  If a borrower returned a portion of, or did not accept the maximum amount of, the original PPP loan for which it was eligible, such borrower may apply to receive up to the maximum amount that was available to it so long as such borrower had not received forgiveness of its loan as of the date the Updated PPP Act was enacted.

© Copyright 2021 Sills Cummis & Gross P.C.National Law Review, Volume XI, Number 7
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About this Author

Brian A. Haskel Corporate Attorney Sills Cummis & Gross New York, NY
Member

Brian A. Haskel is resident in the Sills Cummis & Gross New York office.  He is a highly experienced corporate attorney, with extensive transactional experience in mergers and acquisitions, securities offerings and counseling on general corporate and securities law matters.  Mr. Haskel advises private equity, venture capital and hedge funds, public and private companies and issuers and underwriters, family offices, domestic and foreign clients.  His experience includes joint ventures, reorganizations, debt restructurings, securities law filings, tender and exchange offers, consent...

(212) 500-1541
Alan E. Sherman Tax & Corporate Attorney Sills Cummis & Gross Newark, NJ
Member

Alan E. Sherman focuses on the area of tax and corporate planning. Mr. Sherman regularly counsels clients ranging from small business entrepreneurs to Fortune 500 public companies. He brings a unique advantage to clients — an understanding of business and related areas such as real estate and mergers and acquisitions and the application of the tax laws to achieve the maximum benefit. With this perspective, Mr. Sherman is able to suggest creative and practical tax solutions to client problems. He has extensive experience in the area of taxation of partnerships and limited liability...

(973) 643-5959
Jason L. Sobel Real Estate Attorney Sills Cummis & Gross Newark, NJ
Member

Jason L. Sobel is a Member of the Sills Cummis & Gross Real Estate Department and chairs the Firm’s F.O.R.E. (Family Owned Real Estate) Practice Group.  He primarily counsels retail, industrial, office and residential real estate owners and developers regarding acquisitions, sales, financing, and leasing with respect to their projects.  He also represents several lending institutions in commercial and construction financings as well as a number of clients with respect to retail liquor license transfers and related issues.  Additionally, Mr. Sobel assists different privately-held...

(973) 643-5295
Lori M. Waldron, Sills Cummis Law firm, Emerging Growth Attorney, Stock Acquisition Lawyer
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Lori M. Waldron's practice focuses on the representation of both emerging growth and well-established public and private companies in sophisticated business transactions, with a particular emphasis on the life sciences and biotech industries. Ms. Waldron has extensive experience representing clients through all phases of their business cycles and advising them how to best take advantage of varying business opportunities, whether arising in the ordinary course of business or as an extraordinary matter. Her regular practice includes counseling her clients in connection with start-up...

(973) 643-5158
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