A Holiday Miracle: New PPP Funds, Second Draw Loans & Tax Relief

By: Patrick Ungashick

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To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.

A Holiday Miracle: New PPP Funds, Second Draw Loans & Tax Relief

In a surprising turn of events, Congress and President Trump acted, as part of yet another omnibus COVID relief package, to add new funds into the Paycheck Protection Program (PPP) and override the IRS’s previous attempts to tax PPP loan forgiveness.

Under the new act, an additional $284 billion has been allocated to the PPP program which was first created earlier this year under the CARES Act. The newly passed act also allows businesses that have already received a PPP loan to apply for a second loan under the “Second Draw” provision, albeit under stricter guidelines. To apply for a Second Draw PPP loan, a borrowing company must have fewer than 300 employees (down from 500) and must be able to demonstrate that it experienced a 25% or greater reduction in gross revenue during the first, second, or third quarter in 2020 relative to that same quarter in 2019. Second Draw PPP loans are capped at $2 million compared to $10 million under previous PPP guidelines.

The new act also directly addresses one of the most frustrating elements of PPP since the program was first made available—the taxation of PPP. Under the new act, the good news is PPP borrowers can deduct expenses paid for using PPP loan proceeds that are subsequently forgiven. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans. This new law seems to finally close the door on the PPP taxation debate, and overrules multiple efforts by the IRS to assert that taxpayers would not be able to deduct expenses paid for with forgiven PPP loan proceeds.

As with any major piece of legislation, there are important provisions that will impact different taxpayers differently. Business owners and leaders should consult their tax advisors on these recent developments.

The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recessions, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.

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