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Congress Passes $900 Billion COVID Relief Bill

12/22/2020 - By David Uslan, CPA

Late Monday, December 21, Congress passed the long-awaited COVID-related Tax Relief Act (COVIDTRA) as part of the Consolidated Appropriations Act, 2021. It provides expansion of the Paycheck Protection Program (also known as PPP2), expanded unemployment benefits, and direct payments to taxpayers. Below are a few key highlights:

CLARIFICATION OF TAX TREATMENT OF PPP LOAN FORGIVENESS

  • COVIDTRA clarifies that taxpayers whose PPP loans are forgiven are allowed tax deductions for otherwise deductible expenses paid with proceeds of a PPP loan and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. This supersedes guidance from the IRS that previously indicated such expenses were not tax deductible.
  • COVIDTRA clarifies that gross income does not include forgiveness of Economic Injury Disaster Loans (EIDL), emergency EIDL grants, and certain loan repayment assistance. The provision also clarifies that tax deductions are allowed for otherwise deductible expenses paid with the amounts not included in income, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income.

50% LIMIT ON BUSINESS MEAL DEDUCTION IS SUSPENDED

  • Taxpayers may generally deduct the ordinary and necessary food and beverage expenses associated with operating a trade or business, including meals consumed by employees on work travel. The deduction is generally limited to 50% of the otherwise allowable amount.
  • Under the Act, the 50% limit won’t apply to expenses for food or beverages provided by a restaurant that are paid or incurred after December 31, 2020, and before January 1, 2023.

PPP EXPANSION FOR “HARDEST HIT” SMALL BUSINESSES AND NOT-FOR-PROFITS

  • PPP2 loans are available for businesses that have less than 300 employees and who experienced a reduction of at least 25 percent of their revenue in any 2020 quarter compared to the same quarter in 2019. Businesses that previously received a PPP loan are eligible for PPP2 loans if they meet the above requirements and have used or will use the full amount of their first PPP loan.
  • PPP2 loans are also now available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.
  • The bill provides a simplified loan forgiveness process for loans under $150,000.

NEED ASSISTANCE NAVIGATING THE COVID-RELATED RELIEF ACT? 

The highlights above are a general overview of certain aspects of the COVID-related Tax Relief Act (COVIDTRA) passed by Congress on Monday, December 21, 2020. If you have specific questions, please contact your Saltmarsh tax advisor at (800) 477-7458.

Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult a professional.


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