Latest Updates on the New Stimulus Package

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This content is for general informational purposes only, and should not be
used as a substitute for individualized tax advice with a qualified tax advisor.
This content represents the views of the authors only and does not
necessarily represent the views or professional advice of
WithumSmith+Brown, PC.
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Frank Boutillette, CPA, CGMA
Partner, Market Leader
SBA Financial Assistance Services
fboutillette@withum.com
(212) 829 3238
Louis Young
Advisory
Automotive Team Leader
lyoung@withum.com
(732)379-5218
Daniel Mayo, JD LLM
National Lead, Federal Tax Policy
dmayo@withum.com
(973) 532-8847
Matthew Walsh, CPA, MS
Team Leader
SBA Financial Assistance Services
mwalsh@withum.com
(215) 932 4411

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 December 27, 2020 – President signed Consolidations Appropriations Act, 2021 (“CAA”)
 Government appropriations of approximately $1.4 trillion
 Pandemic-related relief of more than $900 billion
 Various tax provisions and extenders
 Most recent PPP Guidance –
 January 19, 2021 – SBA announced it has approved nearly 60,000 PPP loan applications since the reopening on January 11th
 January 19, 2021 – SBA issued new Form 3508S simplified one-page loan forgiveness application and instructions for loans of $150K or
less
 January 19, 2021 – SBA issued new Form 3508EZ loan forgiveness application and instructions
 January 19, 2021 – SBA issued new Form 3508 loan forgiveness application and instructions
 January 19, 2021 – SBA issued new borrower’s disclosure form for 20%+ controlling interests held by certain government officials and
their spouses
 January 19, 2021 – SBA issued an IFR on loan forgiveness requirements and lenders’ loan review procedures (62 pages)
• Incorporates and restates rules from prior IFRs, and revises to conform to the CAA
 January 19, 2021 – SBA issued guidance on calculating the max loan amount for Second Draw PPP Loans – by business type (18 pages)
 January 17, 2021 – SBA issued guidance on calculating the max loan amount for First Draw PPP Loans – by business type (12 pages)
 January 8, 2021 – SBA released updated PPP loan applications
 January 6, 2021 – SBA released two interim final rules (“IFRs”)
• IFR – consolidated rules for PPP1 (incorporates and restates rules from prior IFRs, and revises to conform to the CAA) (21 pages)
• IFR – new rules governing PPP2 (12 pages)
 January 6, 2021 – IRS acknowledged legislative change to PPP expense disallowance (Rev. Rul. 2021-2)
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 Expansion of the covered period (“CP”) –
 Borrower selects applicable period as desired between 8 weeks after the date of
origination and 24 weeks after the date of origination
 $100,000 wage cap continues to apply for the chosen CP
• For example, if borrower uses a 16-week CP, limitation is $30,769 ($100,000 x 16/52)
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 Expanded payroll costs to include:
 Employer payments for group life, disability, vision and dental insurance
 Expanded the eligible nonpayroll costs to include:
 Covered operations expenditures – includes payment for any business software or cloud
computing service that facilitates business operations, product service/delivery, processing,
payment or tracking of payroll expenses, human resources, sales and billing functions, or
accounting and tracking of supplies, inventory, records and expenses
 Covered property damage cost – includes costs related to property damage and vandalism or
looting due to public disturbances that occurred during 2020 that were not covered by
insurance or other compensation
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 Expansion of eligible nonpayroll costs (cont’d):
 Covered supplier costs – expenditures made by an entity to a supplier of goods which are
essential to the operations of the entity at the time at which the expenditure is made; or made
pursuant to a contract order/purchase order (i) in effect at any time before the covered period
or (ii) with respect to perishable goods, in effect before or at any time during the covered
period
 Covered worker protection expenditures – includes an operating or capital expenditure to
facilitate the adaptation of the business activities of an entity to comply with requirements
established or guidance issued by HHS, the CDC, or OSHA or guidance issued by a state or local
government, relating to the maintenance of standards for sanitation, social distancing or other
worker/safety requirement relating to COVID-19
 Effective for PPP2 and PPP1 borrowers who have not yet applied for forgiveness
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 $35 billion dollars earmarked for re-opening of PPP1
 Eligible borrowers who did not receive PPP1 funding can now apply through
March 31, 2021
 Borrowers who did not receive a PPP1 loan but wish to partake in PPP2 must obtain
a PPP1 loan before receiving the second draw loan
 Expanded list of eligible expenses applies, as do the simplified loan
forgiveness application procedures
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 Can borrowers receive more money from PPP1?
 If an eligible borrower under PPP1 returned all or part of their loan, then they can
reapply for the amount returned
 If a borrower did not receive the full amount, they were eligible to receive under PPP1,
then they can request a modification to increase the amount of the loan
 If an IFR caused a borrower to become eligible for a PPP1 loan amount greater than the
amount they received, then the borrower can apply for an increase in the loan amount
 These applications are made through the original lender
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 Applicable for loan of $150,000 or less –
 Applies to PPP2 and PPP1 for borrowers that have not yet applied for forgiveness
 Must use new, 1-page Form 3508S certifications instead of numbers
 No documentation required to be submitted to lender
• Borrower must agree to retain employment records for a 4-year period and other records for a 3-year period
following the submission
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 Form applicable for borrowers with no wage or headcount reductions, taking certain
exceptions into account
 New Form 3508EZ (revised 1/19/2021)
 Restated certification:
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 $284 billion allocated to PPP2 loans which will be offered through March 31,
2021 (or until funds are exhausted)
 Congress intended PPP2 to be targeted to smaller businesses than PPP1 and
adjusted rules accordingly (e.g., 300 vs. 500 employee limit)
 Certifications with respect to economic uncertainty remain. Applicants must
certify that “current economic uncertainty makes this loan request
necessary to support the ongoing operations of the Applicant”
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 Eligible entities are defined to include companies that meet the following:
 Received a PPP1 loan
 Any business concern or certain nonprofit organization that:
 Employs not more than 300 employees; and
 Suffered a reduction in gross receipts of not less than 25% in the any quarter during 2020,
as compared to the same respective quarter during 2019
 Special rules for seasonal businesses or entities not in business in 2019
 Affiliation rules from PPP1 apply, employee number and gross receipts test apply for affiliates in total,
unless entity qualifies for waiver of affiliation
 Gross receipts for nonprofit entities is defined to have the same meaning as IRC section 6033
 Exception applies for NAICS 72 code entities that can measure the employee count per
location, as opposed to in total
 Alternative size standards will not apply to PPP2
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 Entities not eligible include:
 Any entity that is a type of business concern described in section 120.110, other
than certain nonprofits or religious organizations. Examples include:
 Financial businesses engaged in lending/banks
 Passive businesses owned by developers/landlords
 Businesses located in a foreign country
 Any business concern primarily engaged in political/lobbying activity; or
 Any business concern with specifically-defined ties to either China or Hong Kong
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 Borrower must be able to demonstrate reduction in gross receipts of 25% or
greater in any 2020 quarter as compared to same quarter in 2019.
 Can compare the full year 2020 vs 2019 if this results in 25% + reduction
 Needs to have been in business on 2/15/2020
 If not in business for full year in 2019 can compare those quarters in business in
2019 vs corresponding quarter in 2020
 If business started in first quarter of 2020, can use first quarter to compare with
other 2020 quarters
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 Gross receipts, as defined in IFR:
 “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”
 Excludes net capital gains/losses as these terms are reported separately on IRS tax
return forms
 Should not include taxes collected for and remitted to a taxing authority
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 “Gross receipts” has same meaning as gross receipts within Section 6033 of
the Internal Revenue Code of 1986,
 Includes, but is not limited to:
 Gross amount received as contributions, gifts, grants, and similar amounts without reduction for
the expenses of raising and collecting such amounts
 Gross amount received as dues or assessments from members or affiliated organizations
without reduction for expenses attributable to the receipt of such amounts
 Gross sales or receipts from business activities (including business activities unrelated to the
purpose for which the organization qualifies for exemption, the net income or loss from which
may be required to be reported on Form 990-T)
 Gross amount received from the sale of assets without reduction for cost or other basis and
expenses of sale
 Gross amount received as investment income, such as interest, dividends, rents, and royalties.
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 Maximum loan amount is calculated as follows:
 The lesser of:
• 2.5 times the average total monthly payroll costs incurred or paid by the entity
during either:
 Calendar year 2019
 Calendar year 2020
 $2,000,000
 Entities with NAICS codes starting with 72 hit especially hard by the pandemic
(generally restaurants, hospitality/accommodation) are eligible to utilize 3.5 as the
multiplier, subject to the $2,000,000 maximum.
 Corporate groups are capped to $4 million of PPP2 funds across all entities
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 Key loan terms of PPP2 include the following:
 1% non-compounding, non-adjustable interest rate
 5-year term (no exceptions)
 No collateral or personal guarantees required
 Notable applicant certifications:
 Economic uncertainty certification as of date of loan application remains
 Applicant used or will use PPP1 on eligible expenses prior to disbursement of PPP2
 Applicant will not receive a Shuttered Venue Operator grant.
 Application forms now available via SBA website (links):
 Borrower Application Form (PPP1)
 Second Draw Borrower Application Form
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 SBA no longer allowed to reduce the loan forgiveness by the amount of any
EIDL grant
 Congressional intent to be retroactive to all borrowers of PPP loans, but
procedures unclear how this can be effected for loans already forgiven
 EIDLs now authorized to be issued through December 31, 2021 (outside of
advance amount, these loans generally are not forgivable and the interest
rate is 3.75%)
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 Provides for targeted EIDL advances for small businesses in low-income
communities that have suffered greater than 30% economic loss
 Qualified entities receive the full $10,000 grant, regardless of the number of employees
 30% economic loss defined as any 8-week period between March 2, 2020 and December 31, 2021,
as compared to a comparable 8-week period before March 2, 2020.
 Entities that received a portion of the $10,000 will be made whole
 SBA announced on January 19, 2021 that applicants do not need to take any action
at this time
 SBA will reach out via email to those who may qualify to confirm eligibility
 Priority will be given to 1) those who received a partial EIDL advance and 2) those who
applied before December 27, 2020 but did not receive an EIDL advance due to lack of
funding
 Only prior applicants will be considered for the EIDL advance
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 PPP is now completely tax-free
 Section 276 reverses the IRS’s position on expense disallowance in the prior Notice
(Notice 2020-32) and Revenue Ruling (Rev. Rul. 2020-27)
 Deductions relating to loan forgiveness will be allowed and the borrower’s tax basis
and other attributes will not be reduced as a result of loan forgiveness
 Effective retroactively so it will cover all borrowers under a PPP loan who obtain
loan forgiveness
 IRS acknowledged the CAA and obsoleted the prior Notice and Revenue Ruling (Rev.
Rul. 2021-2)
 Also provides the same tax-free treatment for PPP2
 EIDL grants are now tax-free too (and there is no expense disallowance), as are
grants for shuttered venue operators and subsidies offered for certain SBA loan
payments, among others
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 Basis rule may create income in 2020 or affect some borrowers’ ability to use
losses from a partnership or S corporation in 2020
 Basis generally is increased for taxable income and tax-exempt income, and it is reduced for expenses
(§§705 and 1366)
 But when does the borrower recognize the tax-exempt income – when the loan forgiveness application is
filed or when it receives a forgiveness decision from its lender?
 Example – sole S Corp shareholder has no outside basis at the beginning of 2020; S Corp has $100 of
income, $100 of expenses, and files a PPP loan forgiveness application in 2020 for the full amount of its
loan, $200; thus, S Corp has $0 taxable income in 2020
 If SH receives basis increase when lender decision is received in 2021, then his basis at the end of 2020 is
$0, and a distribution of $200 in 2020 will be taxable as capital gain
 If SH receives basis increase in 2020, then his basis at the end of 2020 is $200, and a distribution of $200 in
2020 would be tax-free
 Also can affect a partner’s or S Corp shareholder’s ability to claim losses from the relevant entity in 2020 if
there is no basis
 So when is basis increased? IRS position regarding expense disallowance in Rev. Rul. 2020-27 is that
expenses are disallowed in 2020 if at year-end the borrower has a reasonable expectation of forgiveness –
should this apply to the recognition of tax-exempt income for basis purposes? Hopefully the IRS provides
guidance soon
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Background on ERTC
 ERTC enacted as part of the CARES Act on March 27, 2020
 Fully refundable tax credit equal to 50% of wages paid between March 13, 2020
and December 31, 2020 to employees up to a maximum amount of $10,000 per
employee
 Max credit for wages paid to any employee is $5,000 (50% of $10,000)
 Before CAA, could not claim the ERTC if obtained a PPP loan
 Employers can claim the ERTC by reducing their employment tax deposits
 If the amount of the credit exceeds such employment tax deposits, then
employers can apply for an advance payment of the credit on IRS Form 7200
 Year-end reconciliation is later made on employer’s 2020 employment tax return
(Form 941)
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CAA Changes to ERTC – see Division EE – the “Taxpayer Certainty and Disaster Tax Relief Act”
 Extends and expands the ERTC
 CAA extends the wage period so that it applies to qualified wages paid during the first
two calendar quarters of 2021
 Lifts the ban on claiming the ERTC if an employer also obtained a loan under the PPP, and
this change is retroactive to March 13, 2020
 Thus, every PPP borrower now needs to consider the ERTC for Q1 and Q2 2021, and retroactively for
2020 (by filing an amended payroll tax return on Form 941-X)
 No double dipping – any wages upon which an ERTC is computed are not forgivable under the PPP
 Credit percentage and per-employee limitation have been increased
 2021 ERTC equals 70% of qualified wages paid in each of Q1 and Q2 of 2021, up to $10,000 of wages
per employee per quarter
 Max credit per employee in 2021 is $14,000 ($7,000 in Q1 + $7,000 in Q2), versus $5,000 per
employee in all of 2020
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 Expanded eligibility –
 2020 ERTC was based on the existence of a partial or full suspension of operations, or a substantial (more than
50%) decline in gross receipts
 2021 ERTC only requires a decline of more than 20% in quarter-over-quarter (QoQ) “gross receipts” (i.e., the
same quarter in 2021 vs. 2019) to be eligible for that particular quarter
• Employers may elect to use the prior quarter’s gross receipts to qualify (i.e., to test Q1 2021 eligibility, an employer can
elect to compare Q4 2020 to Q4 2019)
• QoQ comparison is 2021 vs. 2020 only if the employer was not in business at the beginning of the relevant quarter in
2019
• Gross receipts means “gross receipts” as defined in §6033, which is a very broad definition that applies to tax-exempt
entities. See Treas. Reg. §1.6033-2(g)(4)
 Hurdle for 2021 qualified wages is now 500 full-time employees (FTEs)
 2020 ERTC counted wages for all employees for companies that averaged 100 or fewer FTEs, and for larger
employers it included only wages for employees who were not providing services due to the suspension of
operations or decline in gross receipts
 2021 ERTC covers wages of all employees in 2021 for employers with up to 500 FTEs (making it easier to keep
track of qualified wages)
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 Larger employers cannot obtain advance payments of the ERTC in 2021 (i.e., to the extent
the ERTC exceeds the amount of the employment tax deposits for the relevant quarter)
 Advance payments can only be obtained if the average number of FTEs employed by the
employer during 2019 was not greater than 500, and in these cases the advance payment is
limited to 70% of the average quarterly wages paid by the employer in 2019
 Group health care cost now count as qualified wages even if no other wages are paid to
an employee
 Helpful because (i) it brings the cost of furloughed employees into the calculation of the
ERTC and (ii) this change is retroactive to March 13, 2020
 See Withum article discussing these changes
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 FFCRA credits for paid sick and family medical leave extended through
March 2021.
 Provides dollar-for-dollar credits offered for employers offering paid sick and family
medical leave
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 Temporary allowance of full deduction for business meals: Temporarily allows a 100% business expense
deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided
by a restaurant. Effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
 Certain charitable contributions deductible by nonitemizers: Extends and modifies the $300 charitable
deduction for nonitemizers for 2021 and increases the maximum amount that may be deducted to $600 for
married couples filing jointly. However, the Sec. 6662 penalty is increased from 20% to 50% of the
underpayment for taxpayers who overstate this deduction.
 Education expenses: Repeals the Sec. 222 deduction for qualified tuition and related expenses but in its
place increases the phaseout limits on the lifetime learning credit (so they match the phaseout limits for the
American opportunity credit), effective for tax years beginning after Dec. 31, 2020.
 Minimum low-income housing tax credit rate: Establishes a 4% rate floor for calculating credits related to
acquisitions and housing bond-financed developments for purposes of the Sec. 42 low-income housing tax
credit, effective in 2021.
 Depreciation of certain residential rental property over 30-year period: Provides that the recovery period
applicable to residential rental property place in service before Jan. 1, 2018, and held by an electing real
property trade or business is 30 years.
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 As part of the stimulus package, Congress extended the Unemployment programs
under the Cares Act.
 The new Act helps the unemployed in by the issuance of an extra $300 per week up to
11 weeks under the Pandemic Emergency Unemployment Compensation (“PEUC”)
portion of the CARES Act.
 The payments could start as early as December 27, 2020 and extend through at least
March 14, 2021. It is prudent to note that no payments will be remitted to individuals
under the (“PEUC”) after April 5, 2021.
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 The March 2020 stimulus check in the amount of $1,200 for qualifying adults and children phased-out for
individuals who earned between $75,000 - $99,000. Married couples filing jointly earning between $150,000
- $198,000 underwent a similar phase out.
 The Act authorizes the payment of an additional stimulus check in the amount of $600 for those same
qualifying adults and children. For the second round of payments authorized, the amount of the stimulus
check will be subject to the same income phase-out.
 The Treasury Secretary has indicated that the new $600 stimulus checks could “potentially” be mailed
directly to taxpayers before the end of 2020.
 It is prudent to note that not every individual who qualifies for the $600 stimulus check will receive it
immediately. With the initial $1,200 payment, many taxpayers didn’t receive their checks until weeks or
months later.
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Latest Updates on the New Stimulus Package

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