TAX ALERT |
Authored by RSM US LLP
The SBA recently released guidance for Paycheck Protection Program (PPP) borrowers looking to obtain a second PPP loan under the recently enacted PPP second draw program. Under this program, a PPP borrower may obtain an additional loan if the borrower meets certain criteria. Prior to the reopening of the loan portals, SBA has released additional guidance on the second-draw program. Once open, the SBA will accept loan applications through March 31, 2021.
|Application dates||Opening of program through March 31, 2021|
|Maximum loan size||$2 million; $4 million aggregate maximum for borrowers considered a single corporate group|
|Revenue reduction qualification||Must be a 25% or more reduction for any quarter in 2020 as compared to same quarter in 2019; PPP borrower can use annual reduction if 2020 revenue is at least 25% less than 2019 annual revenue. 2020 revenue does not include amount of first PPP loan|
|Maximum number of employees qualification||300; for some borrowers 300 per physical location|
The PPP second draw program is available to PPP borrowers who can demonstrate a 25% reduction in gross receipts during any quarter in 2020 as compared to the same quarter in 2019. The second draw program also reduces the maximum number of employees a PPP borrower can have from 500 to 300. A borrower must have used the full amount of its initial PPP loan for authorized purposes or will use the full amount prior to the disbursement date of the second draw PPP loan in order to qualify.
Overall eligibility, other than the revenue reduction criteria and change in maximum number of employees, is substantially similar to the original Paycheck Protection Program. Interestingly though, the list of eligible entities does not include a ‘small business concern’, which encapsulates the alternative size standard that could be used to qualify under the original program. In the original Paycheck Protection Program, a small business concern, as defined by SBA, could use the revenue and employee size for its industry per the SBA size standards or the alternative size standard to qualify for a PPP loan.
|General eligibility||A business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a First Draw PPP Loan, veterans organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization or an eligible nonprofit news organization|
|Must have previously received a first draw PPP loan and must have used or will use full amount of first draw loan prior to expected date of the second draw loan disbursement|
|Must employ not more than 300 employees or for entities that have an affiliation waiver, not more than 300 employees per physical location|
|Must have experienced a 2020 revenue reduction in excess of 25% as compared to 2019 (quarterly or annual)|
|Affiliation rules||Similar affiliation rules (and waivers) as first draw, except ownership affiliation rules are waived for a business concern with not more than 300 employees that is either a business concern that is assigned a NAICS code beginning with 72, a business concern that is majority owner or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151, or a nonprofit organization that is assigned a NAICS code beginning with 5151
For purposes of computing employees, all employees of any domestic and/or foreign affiliates are included in the employee count
|Excluded entities||Entities excluded from eligibility under initial PPP and:|
|A business concern or entity primarily engaged in political activities or lobbying activities|
|Any business concern or entity created in or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong|
|Any business concern or entity that has significant operations in the People’s Republic of China or the Special Administrative Region of Hong Kong|
|Any business concern or entity that is more than 20%, directly or indirectly, owned by a business concern or entity created in or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong|
|Any business concern or entity that retains, as a member of the board of directors of the business concern, a person who is a resident of the People’s Republic of China|
|Any person required to submit a registration statement under section 2 of the Foreign Agents Registration Act of 1938|
|A person or entity that that receives a grant for shuttered venue operators|
|Entities in which the President, the Vice President, the head of an Executive department, or a Member of Congress, or the spouse of such person owns, controls, or holds at least 20% of any class of equity|
|A publicly traded company, defined as an issuer, the securities of which are listed on an exchange registered as a national securities exchange|
|An entity that has previously received a second draw loan|
|An entity that has permanently closed|
|Payroll cost calculation||Similar to payroll cost computation under initial PPP loan program|
|Borrower can calculate average monthly payroll cost using 2020 calendar year, 2019 calendar year or using specific seasonal employer, new entity, Schedule C or Schedule F rules|
|General rules are that loan maximum is the lesser of 2.5x the computed average monthly payroll and $2 million. For NAICS code 72XXXX borrowers that are not seasonal employers or new entities, the maximum is the lesser of 3.5x the computed average monthly payroll and $2 million|
|Gross receipts reduction||Borrower must demonstrate at least a 25% reduction in gross receipts using any quarter in 2020 as compared to the same quarter in 2019|
|Special rules for borrowers that were not in business during certain 2019 quarters|
|A borrower that experienced at least a 25% annual decline in gross receipts from 2019 to 2020 can use the annual decline. The borrower must submit copies of its annual tax forms to substantiate the decline|
|Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees or commissions, reduced by returns and allowances. Generally, receipts are considered ‘total income’ (or in the case of a sole proprietorship, independent contractor, or self-employed individual ‘gross income’) plus ’cost of goods sold,’ and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.
Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income and employee-based costs such as payroll taxes, may not be excluded from gross receipts.
Gross receipts also do not include funds received from the initial PPP loan
|There are separate rules for calculating gross receipts of affiliates|
|For an eligible nonprofit organization, a veterans organization, an eligible nonprofit news organization, an eligible 501(c)(6) organization or eligible destination marketing organization, gross receipts means gross receipts within the meaning of section 6033 of the Internal Revenue Code of 1986.|
Questions or Want to Talk?
Call us directly at 972.221.2500 (Flower Mound) or 940.591.9300 (Denton),
or complete the form below and we’ll contact you to discuss your specific situation.
This article was written by Mathew Talcoff, Justin Stallard, Ryan Corcoran , Debbie Singer and originally appeared on 2021-01-07.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
KHA Accountants, PLLC is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how KHA Accountants can assist you, please call 972.221.2500.