Today’s Emerging Tax and Regulation Alert – January 26, 2021
Tax Alert: Additional Highlights from the Consolidated Appropriations Act
Our recent series of Tax Alerts have focused on specific areas of the Consolidated Appropriations Act (“CAA”) including the expansion and extension on the Payroll Protection Program (“PPP”) and the Employee Retention Credit (“ERC”). However, there are additional updates from the CAA worth highlighting. The updates below are a general overview and may be beneficial to you and your business.
Expanded Eligible Expenses for PPP Loan Forgiveness
Previously, the forgiveness for PPP loans was based on expenses incurred or paid for payroll costs, mortgage interest, rent or lease costs, and utilities. The CAA expands the list of eligible expenses to include the following:
- Covered operations expenditures – payments made for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.
- Covered property damage costs – costs related to public disturbances during 2020 that were not covered by insurance or other compensation (includes property damage, vandalism, or looting).
- Covered supplier costs – expenditures made to a supplier that are essential to the operations of the business and made pursuant to a contract, order, or purchase order for goods.
- Covered worker protection expenditures – costs related to “COVID-19” measures including any operating or capital cost incurred to comply with safety or sanitation requirements. These costs can include physical barriers, establishment of a drive-through window facility, new ventilation or filtration systems, expanded space, or other assets relating to compliance with government requirements.
- Covered insurance expenses – employer payments for group life, disability, vision, or dental insurance (these costs were previously excluded).
Other Significant PPP Loan Changes
- The CAA extends lender disbursement for all PPP loans to March 31, 2021. This extension allows businesses to take advantage of the PPP second draw provisions.
- The CAA expands eligible nonprofit business recipients of PPP loans to include certain 501(c)(6) businesses and destination marketing organizations.
Other Business Tax Provisions
- The CAA allows a temporary 100% deduction for business meals provided by restaurants that are paid or incurred in 2021 or 2022. Previously, the Tax Cuts and Jobs Act (TCJA) limited the tax benefits available by eliminating the deduction for entertainment expenses and reducing the deductible amount for certain types of business meals. Business meals are generally 50% deductible and entertainment expenses are fully disallowed for tax purposes under the TCJA. The new CAA provisions reverses some of the changes under the TCJA and provides a temporary full deduction of certain business meals. Under the new provisions, business meal expenses incurred after December 31, 2020, and before January 1, 2023, could be 100% deductible. The CAA specifically expands Internal Revenue Code Section 274 to allow a deduction for “food and beverages provided by a restaurant” but does not clarify whether these need to be in-restaurant meals, catered, or takeout.
- The CAA updates the provisions for qualified contributions made to certain organizations for disaster relief efforts. The CAA increases the potential deduction from 25% up to 100% of taxable income for contributions made between January 1, 2020, and February 26, 2021 (60 days after passage of the CAA). In March of 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act permitted corporations to offset up to 25% of taxable income with these qualified contributions (under Section 2205(a)(2)(B)). Previously, a C corporation’s charitable contribution deduction could not exceed 10% of taxable income.
- Real property trades or businesses subject to the interest expense limitations of 163(j) may choose to make an alternate election. Under the election, the interest limitations will not apply but the taxpayer must use ADS depreciation rules resulting in a longer useful life and lower depreciation expense each year. Previously, residential rental property placed in service prior to January 1, 2018, was subject to a 40-year ADS useful life. The CAA reduces this to a 30-year ADS useful life if the taxpayer was not subject to ADS prior to January 1, 2018.
Simplified Forgiveness Application for Loans up to $150,000
On January 19, 2021, the U.S. Small Business Administration (SBA) and Treasury published updated PPP loan forgiveness guidance and forms. This includes Form 3508S which is a one-page forgiveness application for businesses that received a PPP loan of $150,000 or less. The new simplified form seeks information about the loan amount, disbursement date, employee totals, covered period dates, amount of the loan spent on payroll, and the amount of the loan for which forgiveness is being sought. Businesses are not required to submit any supporting documentation with the application but are mandated to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit.
Please reach out to your Topel Forman adviser if you would like to discuss any of the above items in more detail. In addition, we recommend reviewing the following previous Tax Alerts for additional insight into recent tax legislative changes that may benefit your business:
- New Law Clarifies Tax Treatment of PPP Loan Forgiveness,
- Employee Retention Credit May Provide Benefits to Your Business, and
- Payroll Protection Program 2: A Second Bite at The Apple.