On Sunday, December 20, Congress passed a one-day continuing resolution (CR) to keep the federal government running until midnight tonight and unveiled a deal to finalize a $900 billion coronavirus relief package, as well as a federal appropriations omnibus bill that would fund the government for the rest of the fiscal year, until September 30, 2021.
Tonight, the U.S. House passed the coronavirus relief package and merged it with the $1.4 trillion appropriations omnibus. The House also passed a seven-day CR to prevent a looming government shutdown that could still come if a CR is not passed by midnight tonight, when federal funding is set to run out again. The CR may be needed because the package’s enrolling process is likely to take a few days, due to its size and complexity.
The Senate is expected to consider the legislation later tonight. The House-passed CR provides protection against the shutdown that would otherwise occur if the Senate does not vote by midnight.
Coronavirus Relief Package
The COVID relief parts of the bill include an additional $300 from the federal government in weekly unemployment benefits through mid-March, $600 direct payments for eligible individuals, more than $300 billion in small business aid, and funding for public K-12 schools, a pay raise for members of the military, and vaccine distribution. A business liability protection measure, supported by Republicans, and aid for state and local governments, supported by Democrats, had taken center stage during clashes between the parties during previous negotiations over a relief package. Both issues were ultimately stripped from the measure to allow the package to move forward.
Over the past several months, PIA has actively advocated for several of the provisions that are contained in the near-final package, which includes several updates to vital COVID relief programs. Some of the highlights relevant to PIA members are set forth below, and more details are available here in a section-by-section walkthrough of the small business title.
Paycheck Protection Program (PPP)
The PPP, which helped keep businesses solvent throughout the spring and summer shutdown orders, has been prohibited from lending money since August 8, even though over $130 billion had been left unspent.
The relief package provides an additional $284 billion for new PPP loans and allows smaller and harder-hit businesses to obtain a “second draw” loan. The package requires the Small Business Administration (SBA) to write rules for provision in the legislation within ten days of its enactment.
Below are some highlights of the PPP-related provisions that may be especially important to PIA members:
- Creates process for small businesses to receive a second PPP loan if:
- the business has fewer than 300 employees;
- it can demonstrate that it has used or will use the full amount of its first PPP loan; and
- it can show a revenue reduction of 25 percent in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter.
- Reduces the maximum amount for a “second draw” PPP loan to $2 million
- Strengthens lenders’ hold harmless provisions applicable to initial or “second draw” PPP loans
- Expands list of allowable and forgivable uses of PPP funds to include covered operations (software, cloud computing, and other human resources and accounting needs); costs resulting from property damage due to public disturbances that occurred during the 2020 and are not covered by insurance; covered supplier costs; and covered worker protection expenditures (e.g., PPE); the expanded list of forgivable expenses applies to all PPP borrowers, irrespective of the timing of their loans, as long as their loans have not already been forgiven
- Makes certain 501(c)(6) organizations eligible for PPP loans
- Repeals the CARES Act provision that required PPP borrowers to deduct their Economic Injury Disaster Loan (EIDL) advance from their loan forgiveness amount and directs the SBA administrator to issue rules that ensure borrowers are made whole if their loan was already forgiven and their EIDL advance deducted therefrom
- Prohibits publicly traded companies from obtaining PPP loans
- Expands ability of eligible borrowers to request an increased loan amount due to regulatory updates
- Creates a specific farmer and rancher loan calculation applicable to farmers and ranchers who obtained PPP loans before the second draw
PPP Streamlined Loan Forgiveness
PIA, working with allies in the business community, was able to have streamlined loan forgiveness included in the coronavirus relief package. The provision is based on legislation championed by Senator Kevin Cramer (R-ND) and Rep. Chrissy Houlahan (D-PA) and creates a simplified PPP loan forgiveness application for loans under $150,000. The simplified application requires the borrower to sign and submit a one-page certification listing the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs.
Surprise Tax on PPP Loan Recipients Prevented
The Internal Revenue Service (IRS) this fall issued a ruling (IRS Notice 2020-32) that undercut the clear intent of Congress in the CARES Act and transformed forgiven PPP loans into taxable income, raising the possibility that small businesses would face a surprise tax of up to 37 percent on their forgiven PPP loan amounts when they file their 2020 taxes. In response to the IRS ruling, PIA launched a national grassroots effort and advised Congress that small business owners should not be taxed on desperately needed relief, which the PPP was designed to provide tax-free.
PIA is pleased that our efforts paid off; the bill specifies that forgiven PPP loans will not be considered taxable income. It also clarifies that borrowers may deduct expenses paid for with the proceeds of a forgiven PPP loan. These provisions effectively overturn IRS Notice 2020-32.
PIA is gratified that Congress decided to protect the five million qualifying businesses from a surprise tax on their forgiven loans when they file their 2020 taxes.
Economic Injury Disaster Loan (EIDL) Program Modifications
- Extends covered period for emergency EIDL grants for an additional year, through December 31, 2021
- Allocates $20 billion to the SBA’s Targeted EIDL advance program for eligible entities in low-income communities
- Makes entities in low-income communities that obtained an EIDL advance for less than $10,000 eligible to receive the difference between what they were given and the $10,000 EIDL maximum advance
PIA urges the Senate to pass the legislation as soon as possible and for the president to sign it into law.