This is part 2.  If you didn’t read yesterday’s blog (What??? How could you not), here’s the link to it.

The PPP Provisions  (These provisions of the act are termed “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act”)

Did you get a PPP in 2020?

PPP is tax-deductible and its uses are tax deductible. First of all, Congress has clarified (or is that overturned?) the provisions for whether the use of PPP funds is tax deductible.  The IRS was prepared to disallow any expense for which PPP funds were used, to disallow their inclusion as deductible expenses.  Congress had indicated that PPP should not be taxable, but Treasury Secretary Mnuchin declared that any expense that was paid with PPP funds could not be deductible for tax purposes.  This time, Congress made it plain and evident that its intent was the PPP funds would not affect the deductibility of expenses.  All legitimate expenses- whether covered by the gross revenues of the firm, by business principals covering the cost, or the PPP loan paying those expenses- are all deductible against revenue and can be so accorded via our tax filings.

PPP loans for $ 150,000 or less.  The forgiveness form is a simply one page form, 3508S.  (It is possible yet another new form may be issued.)  The application for forgiveness details the number of employees the borrower retained (due to the loan), the total spent on payroll costs, and the total loan.  This same shortened forgiveness application will apply to 2021 loans (explained below).

Deductible Expenses.  As long as 60% of the loan proceeds are employed for “payroll expenses”, the other 40% that may be included for loan forgiveness has been expanded.  These now include not just rent and utilities, but software costs (including cloud-based systems- QB Online, CRM software,  Google Drive, Zoom, Skype, etc.), accounting, human resources, PPE and COVID-19 related expenses, property damage (due to civil unrest), but also supplier costs that had been contracted or ordered BEFORE the loan was issued as well as any perishable goods ordered before or during the life of the loan.  (NOTE:  All such expenses must be fully paid during the forgiveness period.)  This should help those firms that have relatively high non-rent and non-utility expenses.

Can you get a PPP loan in 2021?

The short answer is yes!  The second loan is called a “PPP second draw loan”.  These funds ($284 billion isare appropriated) are limited to firms with 300 or fewer staff members. Oh- with another strong proviso.  The firms must demonstrate that there has been a 25% decrease in gross receipts from year to year.  In other words, 2019Q1 compared to 2020Q1, 2019Q2 compared to 2020Q2, or 2019Q3 compared to 2020Q3.  (I do not think the funds will be available- or that companies could have definitive figures in time to include the last quarter- but they are not excluded for 2019Q4 compared to 2020Q4).  No decrease in revenues? No loan.  Note further that if a company were not operational by 20 February 2020, there is no way a PPP loan can be acquired.

If a decrease in revenues can be shown, then the company (with less than 300 employees; and no publicly traded companies are eligible) can borrow 2.5X their average monthly payroll costs for the year prior to the loan- or the current year.  The maximum loan value is set at $ 2 million and to be forgiven the split between payroll and non-payroll remains at 60/40. (Note that Congress realized that the hospitality industry is in desperate straits; restaurants and hotels (those businesses classified in NAICS code 72) are allowed a 3.5X multiplier of their monthly payroll costs for PPP loans.)  The maximum employee salary available for the PPP loan is $ 100,000 on an annualized basis.  (If the salary exceeds that amount, the loan basis assumes the salary is $ 100 K.)

As is true for 2020 loans, forgiveness for 2021 loans will not become a taxable event.  Moreover, the tax basis (and other attributes of the borrowers assets) will not be reduced by the loan.  To make sure, this provision is retroactive to the CARES Act enactment (27 March 2020).

Note that just because a firm was unable (or too slow) to obtain a PPP loan in 2020, it does not mean this firm can’t apply for a PPP loan in 2021. This includes churches and faith-based entities, as well as Schedule F Farmers.  Moreover, there is a special set-aside for borrowers with 10 or fewer employees and for borrowers in designated low-income or moderate-income neighborhoods- the loans are limited to $ 250K.

The deadline to apply for a PPP loan is 31 March 2021.

Other Entities

There is a $ 15 billion benefit package for cinemas and theaters.  These entities (covered in the section of the bill called Shuttered Venue Grants) have been disastrously hit by the pandemic provisions.  To obtain these funds, the same 25% reduction in gross receipts must be demonstrated for a quarter for businesses in this market segment.

Oh- and there’s also $ 20 billion additional funds for EIDL (Economic Injury Disaster Loans) in this act.  (I don’t think that the $ 10K gimme [cash advance] that was part of last year’s EIDL provisions will prevail this year.)  Low income communities get the first crack at EIDL loans.

The 3 Martini Lunch is Back

As a means to help the distressed restaurant industry, Congress has brought back the 3 martini lunch provision for 2021 and 2022.  For those of you unfamiliar with the sly term, Congress had cut the deductibility of business meals back in the 1980s to 50% because it was thought to promote ‘3 martini lunches’ for corporate executives.  Well, now the rule returns – at least for two years- that will allow businesses to deduct the full value of business meals.

Please note that there was no changes to the NON-deductibility of entertainment expenses, which includes golf club memberships and the like.

Wine and Liquor Taxes

The TCJA temporarily erased excise taxes on wine, beer, and liquor.  These were due to return to normal levels on 1 January 2021.  But, this new bill makes those tax cuts permanent.  (This is the problem with the way legislators claim that tax cuts won’t destroy the budget- by having provisos that they will revert to previous levels after a certain time period.  That makes the “10 year cost” palatable.  But, as you can see, that simply a fiction, since Congress always finds a way to make those tax cuts permanent- and, in so doing,  permanently damaging the federal coffers.)  More importantly, you and I will save a few pennies on beer and wine. But InBev (a Belgian-Brazilian megabeast that owns Anheuser Busch plus a slew of quote-unquote small craft beers) and Bacardi (a privately held firm) will save millions.

Anonymous Corporations and  LLC’s Outlawed

Before we get too far discussing this provision, you must realize that this is NOT part of the 5593 page bill we’ve been discussing.  Nope, this provision is part of the National Defense Authorization Act (NDAA)  that was passed at the same time as the budget.  The bill that TheDonald vetoed (and Congress subsequently overruled the veto- the first ever under TheDonald),because it will require all military installations that honor Confederate Army folks (you know, traitors to the USA) be renamed.   Oh, yeah- TheDonald also wanted another extraneous piece of law added in- the repeal of Section 230 (internet protections) so he could attack Amazon, his nemesis.  That didn’t happen either.  (But you can bet that the new Congress that began its session on Sunday will be examining how the internet behemoths have been behaving.  So, Section 230 is not off the hook yet.)

But, because anonymous businesses (aka shell companies) that are formed secretly, without disclosing the principals and owners of the business- are a security threat to America, they were outlawed as part of the Defense bill.  Whether these entities are used to launder money, fund terrorism, or purchase high-priced real estate secretly for Russian politicos, they certainly pose a risk for America’s security.

So, Division F in the NDAA stipulates that all new corporations and limited liability companies (LLCs) must now provide the name, address, government issued ID’s (social security number, federal identification number [if corporation], ITIN (individual tax identification number [for aliens]) when they are formed.

The Treasury Department has one year to set formal compliance rules.  These new rules would apply to all new companies.  Oh, and existing companies would have two years to comply by submitting their information to the Treasury Department.

It’s still kind of hard to synopsize a 5593 page act in a few words.  So, there will be a Part 3 to be published tomorrow.