The Consolidated Appropriations Act, 2021 (“CAA 2021″) was passed by Congress on December 21, 2020 and signed into law by the President on December 27, 2020. A few highlights of the new law include the following:
Small businesses with fewer than 300 employees which can establish a 25% or more drop in gross receipts during the 1st, 2nd, or 3rd quarter of 2020 as compared with the same quarter in 2019, are eligible for a Paycheck Protection Program (“PPP”) loan, whether it is a first or second loan. Nonprofits are also eligible for PPP loans, including churches and public charities. Newly eligible are nonprofits that qualify as exempt from Federal income tax under section 501(c)(6), including business leagues and associations. An eligible section 501(c)(6) organization must be able to document that less than 15% of its activities involve lobbying, and less than 15% of receipts are from lobbying activities.
CAA 2021 also clarifies that PPP loans that are forgiven do not result in forgiveness of indebtedness income, i.e., do not result in taxable income to the recipient. Clarification was also provided regarding the tax treatment of business expenses paid with the PPP loan. Despite the guidance issued by the Internal Revenue Service stating that said expenses are not deductible, CAA 2021 specifies that business expenses paid for with a PPP loan, whether forgiven or not, are fully deductible for tax purposes.
The employee retention credit was extended to July 1, 2021, with the credit expanded from 50% to 70% of qualified wages. There is also an increase in the limit of qualified wages per-employee, for a credit of $10,000 per quarter rather than the prior $10,000 per year. The definition of eligible employee is broader and so more employees will qualify for the credit.
Also, fifteen billion dollars was designated for live venues, including independent movie theaters, live performing arts organizations and cultural institutions. During the initial 14-day period of implementation grants will be awarded to eligible arts organizations that can demonstrate a drop of 90% or more in revenue. In the following 14-day period grants will be awarded to institutions that show a 70% or more drop in revenue. Thereafter, grants will be awarded to all other eligible entities, up to the $15 billion cap in funds appropriated. Grants may be used for payroll, rent, utilities and personal protective equipment. Funds are also being made available to assist K-12 public and private schools, along with colleges and universities.
To assist restaurants, lunches paid for by businesses will be fully deductible as a business expense at 100% of the cost of the lunch, without exclusion for beverages. Hence, the three-martini lunch will now be fully deductible. This deduction is available for business meals in 2021 and 2022.
Many of these provisions are complex with varying requirements depending upon the factual situation. The summary above is not intended as legal advice, but merely an introduction and summary of some of the highlights. For additional guidance, please contact the author at Jackson & Campbell.