The “Taxpayer Certainty and Disaster Tax Relief Act of 2020 – as part of the Consolidated Appropriations Action, 2021 (CAA) – (enacted December 27, 2020) instituted another round of Paycheck Protection Program Loans/Grants. Eligibility for PPP2 includes a 25% Reduction in gross receipts “test.”
Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually. MBC’s Controller called to ask us about the “Second Draw Paycheck Protection Program (PPP2) loans that are currently be administered through local lenders.“You’ve already told us that ‘gross receipts’ for PPP2 purposes – when calculating whether we show the required 25% reduction – is basically ‘Form 990 accounting,’ correct?” “Yes,” we answer. “And, that information and guidance can be found on the SBA’s new document that was just released this week. It can be found at:Second Draw PPP Loans — How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide (1.19.2021).pdf (sba.gov) “Okay,” he says. “What about our PPP1 loan that was forgiven. Is that included in gross receipts? And, if so, would we include it when we got the funds or when they were forgiven?” “Ahh, great question. The short answer is no. PPP1 funds and EIDL emergency advances/grants are not included in ‘gross receipts’ for the 25% reduction calculations. So, that renders the ‘when’ question a moot point.” “Cool,” they say.
From SBA “Second Draw Paycheck Protection Program (PPP) Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide” (as of January 19, 2021):
2. Question: For all entity types (e.g., for-profit businesses and nonprofit organizations), do “gross receipts” include PPP Loan proceeds that are forgiven (or EIDL advances)?
Answer: No. The amount of any forgiven First Draw PPP Loan or any EIDL advance, which are not subject to federal income tax, is not included in the calculation of “gross receipts”.
- The new tax legislation enacted December 27, 2020, commonly referred to as the CAA, established a “second draw” for the Paycheck Protection Program.
- There are several qualifiers for these second draw loans including 300 or fewer employees, a 25% reduction in gross receipts (from 2019 vs. 2020), and having used (or will use) the full amount of your first PPP loan.
- Check out the SBA’s “Second Draw PPP Loans…” “FAQs” (link above) to find out more about calculating the 25% reduction and documentation required for a PPP2 loan/grant.
- As with PPP1, work with your lender on applying for the PPP2 loans. Do it today!
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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