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Paycheck Protection Program (PPP) Legislation for Christmas

December 09, 2020

by David Morse, Tax Policy Director

Congress seems likely to attach COVID-19 relief to a must-pass omnibus spending package before adjourning at Christmas this year. However, Congress will need more time to negotiate both regular government funding and extra relief provisions. The new bipartisan package that restarted negotiations includes a long-sought deductible for the first round of Paycheck Protection Program (PPP) loans as well as simplified forgiveness for loans under $150,000 and a second round of COVID Loans. Although the initial PPP loans were quite popular, the new legislation may still face obstacles.

Senate Majority Leader Mitch McConnell has not fully embraced the bipartisan package and has his own new trimmed relief bill. In his version, there is no deductibility relief. Currently, the PPP serves as a forgivable loan. Though the loan's forgiveness is tax-free, the IRS has determined borrowers can't write off expenses covered by loan forgiveness.

Businesses have had varying expectations regarding PPP forgiveness deductibility. After the IRS initially provided notice in May regarding the lack of PPP forgiveness deductibility, numerous legislators hoped to correct this oversight. But in his summer's COVID-related legislation, PPP forgiveness deductibility seemed to disappear. However, with COVID-19 legislation getting a new lease on life, the business community (including many CPA members) would like to see this legislation make good on the early summer promises.

Simplified forgiveness for PPP loans of under $150,000 has the most substantial chance of passage. The Small Business Administration (SBA) is falling behind in processing PPP forgiveness. This segment of loans remains the most popular intended recipients of PPP. Therefore, they will likely receive even more assistance in processing PPP forgiveness than the SBA has already provided.

However, the second round of PPP Loans may come with more additional strings than prior efforts. According to his version of the legislation, Senate Majority Leader McConnell wants eligibility for a second PPP loan restricted to businesses with fewer than 300 employees and a minimum "25 percent reduction in revenue between comparable quarters in 2019 and 2020." His version recognizes that Congress has received criticism for releasing initial PPP funds to larger businesses first, and must also address fraud concerns. Ultimately, some changes in the PPP's previously wide availability should be expected.

Many other aspects of this COVID relief package are still being negotiated, but some additional help is likely for US businesses just before Christmas. 

Tax Strategy

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