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As I write this the Dow Jones is over 30,000, the S&P is almost 3,700 and Bitcoin is over $23,000.  Interest rates are near all time lows, housing is in demand in many parts of the country, and business activity seems to be picking up. All of this while families and small business are still struggling through the pandemic of 2020.

In response to the continued uncertainty and hardships faced by Main Street, Congress has passed the bill that provides COVID-19 relief and now awaits signature by the President.  The full text of the bill is almost 5,600 pages and can be found here.

Some of the key components of the approximately $900B bill are $600 stimulus payments for individuals and their families, extended unemployment benefits, and funds set aside for a second Paycheck Protection Program (“PPP”) Loan program.

The PPP Loan program is a targeted effort to support small businesses that have been hit the hardest and has some key differences from the first round of PPP loan provisions.

Qualifications for PPP Loans

Of note is that first-time borrowers AND applicants who previously received the first round of PPP money are eligible for the second round.  Eligibility for the program is limited to companies that have 300 or less employees (similar rules to the first PPP loan program apply for businesses with more than one location), and have experienced a reduction of revenue of at least 25% in any of the first three quarters of 2020 as compared to 2019.  For loan applications filed in 2021, the fourth quarter comparison may also be used.

If the business did not exist in 2019 but was in operation on or before Feb 15, 2020, then there are special rules available.

Loan Limitations

The maximum loan available for the second PPP Loan is the lesser of $2,000,000 or 2.5 times the average payroll.  The covered period for the payroll is either the average of the 2019 calendar year, or the one year period prior to the loan application.

Companies whose NAICS Codes start with 72 (Accommodation and Food Service) are eligible to use 3.5 times the average payroll. This was a focused effort to help those industries that have been hit especially hard, including hotels and restaurants.

Loan Forgiveness

Consistent with the first PPP Loan Program, payroll, rent, covered mortgage interest, and utilities are eligible for forgiveness.  In addition, Congress has made the following expenses eligible for forgiveness:

  • Covered operations expenditure, including business software and cloud computing services
  • Covered property damage cost not covered by insurance in 2020
  • Covered supplier cost essential to operations at time expenditure is made
  • Covered worker protection expenditures

To be forgiven, at least 60% of the loan must be used for payroll.  Small businesses have up to 24 weeks from the time of the loan to cover eligible expenses.

Tax Treatment of Forgiveness of Covered Loans


A debate has been raging for months related to the tax impact of the forgiveness of the loans. In November, the IRS came out with Notice 2020-32 that disallowed any deductions that were paid with the forgiven loan money, effectively making the forgiven loan taxable.

Congress reversed the IRS decision in the bill, by allowing the deductions in the bill as follows:

‘‘(1) no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness”, ‘‘(2) no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income”.

As of this writing, the President has not signed the bill into act and there could be changes to some of the provisions.  For more information on provisions that may impact you, we encourage you to contact your Calvetti Ferguson tax advisor.

Michael Arnell, CPA

TAX PARTNER

817.435.8608
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