On March 11, 2021, President Joe Biden signed into law the American Rescue Plan Act of 2021 (ARPA or Act). The legislation adds an additional $15 billion in new funding for Economic Injury Disaster Loans (EIDL) and $7.25 billion in Paycheck Protection Program (PPP) funding. The Act also expands eligibility for PPP loans and modifies PPP loan forgiveness rules.
This insight highlights instances of expanded PPP eligibility for economic aid under ARPA.
Congress initially limited PPP loan eligibility under the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to nonprofit organizations described in Sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code (Code), as long as they met the PPP’s applicable size limitations. Under the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act), Congress extended eligibility to 501(c)(6) organizations that met certain size limits and limits on lobbying activities. ARPA extended PPP eligibility to most nonprofit entities other than 501(c)(4) organizations by adding authorization of loans to “additional covered nonprofit entities.” ARPA defines an “additional covered nonprofit entity” as an organization described in any paragraph of Section 501(c) of the Code, other than paragraph (3), (4), (6), or (19), that is tax exempt under Section 501(a) of the Code. Additional covered nonprofit entities are now eligible for First Draw PPP loans provided they meet certain size limits and limits on lobbying activities outlined in ARPA.
In addition to expanding eligibility to new types of nonprofit entities, ARPA also expands eligibility to larger nonprofit organizations. It allows 501(c)(3), 501(c)(6), and 501(c)(19) entities that employ no more than 500 employees per physical location eligibility for First Draw PPP loans. Prior legislation had limited the threshold to 300 employees per physical location.
Online News Publishers
The Act now makes news or periodical publishers that operate solely on the Internet eligible for PPP First Draw loans. Such entities may employ no more than 500 employees per physical location and must certify in good faith that proceeds of the loan will be used on expenses incurred to support local or regional news.
Restaurant Revitalization Fund
ARPA also set its sights on providing additional relief to a sector of the U.S. economy hardest hit by the COVID-19 pandemic–the local restaurant industry. The Act affords tax-free federal grants equal to a restaurant’s pandemic-related revenue loss for the period February 15, 2020, to December 31, 2020, from the Restaurant Revitalization Fund (Fund). To be eligible for the tax-free federal grant, the following conditions must be met:
- The applicant is not a publicly traded entity and does not own or operate (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names.
- The applicant must make good faith certifications to both of the following:
- Current economic conditions make it necessary to request the grant to support ongoing operations.
- A “Shuttered Venues Operators” grant has neither been applied for nor received.
Total tax-free federal grants under the Fund are capped at $10 million per eligible business and $5 million per physical location. Grant amounts may be used to cover payroll costs, mortgage payments, rent, utilities, maintenance expenses, operational expenses, paid sick leave, and supplies. Qualifying expenditures paid with grant funds will still be deductible, so long as the expenditures otherwise qualify for deduction under the Internal Revenue Code.
Shuttered Venue Operators (SVO)
Under the Economic Aid Act, venues could not access both PPP and SVO grants. This restriction has been removed under ARPA, enabling those that have received SVO grants to apply for First Draw PPP loans as well. Likewise, venues that previously received PPP loans may apply for an SVO grant. If approved, the amount of the grant will be reduced by PPP loan amounts previously received.
PPP loan forgiveness is expanded to include payments made for premiums on behalf of individuals who qualify for health insurance under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The expanded forgiveness provision applies only to loan forgiveness applications received after March 10, 2021.
In addition to the $15 billion of new funding, ARPA clarifies the tax treatment of targeted EIDL advances made under the Economic Aid Act. It clarifies that targeted EIDL advances are not included in the gross income of the recipient and that the exclusion from gross income will not result in a denial of deduction, a reduction of tax attributes, or the denial of basis increases.
If you would like to speak with a tax professional about PPP eligibility or loan forgiveness assistance, need additional guidance related to COVID-19, or would like assistance with any matter involving tax planning and strategy or business advisory, visit PYA’s COVID-19 hub, our PPP Overwatch program, or contact a PYA executive below at (800) 270-9629.