Among its numerous relief and stimulus provisions, the recently-enacted 2021 Consolidated Appropriations Act (the "Act") authorizes up to an additional $284.5 billion for Payment Protection Program ("PPP") loans and a new entertainment industry grant program for "shuttered venue" operators. Here's a summary of these provisions.
The PPP began in April 2020 with $349 billion in funding. After the initial funding was exhausted in less than two weeks, an additional $310 billion was authorized, bringing total PPP funding to $659 billion. The Paycheck Protection Program Flexibility Act of 2020, signed in June, 2020, made substantial changes to the PPP, but the authorization for new PPP loans lapsed last August.
In addition to authorizing additional PPP loan funding, the Act changes the existing PPP in a number of respects, including the following:
- Permits eligible PPP borrowers to receive a second PPP loan (a "second draw" loan) if they have fully used, or will use, their initial PPP loan before the date of receipt of the second draw loan;
- Extends until March 31, 2021 the period during which borrowers may receive initial and second draw PPP loans;
- Substantially expands the types of covered expenses eligible
for forgiveness to include (in addition to payroll costs, certain
mortgage costs, rent, and utility expenses):
- certain property damage costs, including costs arising from property damage due to "public disturbances" during 2020 not covered by insurance;
- certain worker protection expenses, including costs incurred to comply with COVID-19-related employment safety requirements imposed by federal, state and local governments;
- certain operating costs, including payments for "any business software or cloud computing service that facilitates business operations...";
- certain supplier costs, including expenses for supplies "essential to the operations of the entity" and made pursuant to agreements relating to perishable goods or otherwise entered into before the loan forgiveness covered period;
- Expands borrower eligibility to include certain 501(c)(6) organizations, destination marketing organizations and certain state colleges and universities;
- Simplifies the forgiveness application for loans not exceeding $150,000;
- Expressly prohibits participation by publicly-listed companies; and
- Establishes special procedures for borrowers that are in bankruptcy, allowing debtors in possession or trustees to obtain PPP loans if approved by the bankruptcy court.
For second draw loans, not all borrowers who were eligible for initial PPP loans will be eligible, as eligibility criteria have been revised. For example, borrowers seeking second draw loans may not have more than 300 full-time and part-time employees, a reduction from the 500-employee limit applicable to initial PPP loans, and are required to show a reduction of at least 25% in gross receipts in any given quarter of 2020 (as compared to the corresponding 2019 quarter).
The Act also clarifies that (i) forgiven PPP loans will not be included in taxable income, (ii) deductions are permitted for expenses paid with PPP loans that have been forgiven, and (iii) in the case of borrowers that are partnerships or S corporations, PPP loan forgiveness will not reduce the outside tax basis of a partner's or shareholder's interest or shares in such entity.
Entertainment Industry Relief: Shuttered Venue Operator Grant Program
The Act also creates a new "Shuttered Venue Operator Grant" program. This program provides for $15 billion in grants to certain live event operators and promoters, talent representatives, performing arts groups, theatrical producers, movie theaters, nonprofit museums, botanic gardens, zoos and historic homes. These grants are intended to cover costs incurred between March 1, 2020 through December 31, 2020, including eligible PPP expenses, advertising, state and local taxes, maintenance expenses and administrative costs, certain mortgage and debt payments and payments to independent contractors. In order to be eligible, a grant recipient must, in addition to satisfying other criteria, have been fully operational as of February 29, 2020, demonstrate that it suffered a reduction of at least 25% in revenue during any quarter in 2020 as compared to the corresponding 2019 quarter and be open or have an intention to reopen as of the date of the grant. Eligible entities cannot have operated in more than one country or more than 10 states or employed more than 500 employees as of February 29, 2020.
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