2021 Legislative Preview & Overview of PPP Second Draw Loans - Orr & Reno, P.A. Tony Sayess and Lindsay Nadeau January 26, 2021
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2021 Legislative Preview
&
Overview of PPP Second Draw Loans
Orr & Reno, P.A.
Tony Sayess and Lindsay Nadeau
January 26, 2021
1
AGENDA:
1. FEDERAL TAX PREVIEW
2. NH LEGISLATIVE PREVIEW
3. SECOND DRAW PPP LOANS
2
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 //
(603) 224.2381Federal Tax Preview
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 3What Tax Changes Can be Expected
During Biden Administration
• STAGE 1
– “American Rescue Plan” currently under negotiation
– Size
• $1.9 Trillion in tax cuts and spending increases (roughly same size as the
legislation enacted in March 2020, including CARES Act and Families First
Coronavirus Response Act)
– What is Expected to be in it?
• $1,400 economic impact payments
• Temporary increase to child tax credit
• $400 per week unemployment checks through 9-2021
• Aid to state and local government
• Education aid
• Funds to support vaccinations
– $15 minimum wage is not expected to pass under current U.S.
Senate Rules and would require changes to filibuster rules
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 4What Tax Changes Can be Expected
During Biden Administration
• STAGE 2
– Spending on “Infrastructure”
– Increase EITC (Earned Income Tax Credit) for low-income
Americans
– Increase Child Tax Credit
– Increase Green Energy Credits
– Paid for with Tax Increases
• Households making more than $400,000
– Return top individual rate to 39.6%
» Currently top rate of 37% on single filers with over $518,000; Joint filers over $622,000
– Increase payroll tax on high earners
– Increase in capital gains tax rate
– Repeal basis step-up at death
– Eliminate Like-Kind Exchanges (1031) for those earning $1,000,000+ per year
• Corporations
– Increase corporate tax rate from 21% to 28% (used to be 35% before Trump)
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 5What Tax Changes Can be Expected
During Biden Administration
• Are these Realistic?
– Importance of Senate rules and “Budget Reconciliation” process
• Under current rules, Democrats, with 50 votes, plus VP Harris, could enact legislation
without any Republican votes (or filibuster) if it satisfies “budget reconciliation” rules.
• Only legislation that deals with taxing and spending by federal government (and thus
broad minimum wage change may not pass muster under rules)
• Cannot have any impact on budget outside a 10-year “budget window”
– This is why Trump’s TCJA tax cuts expire in 2026
– Much will depend on what the most “conservative” of the Democratic
Senators will agree to as far as tax increases and increases in the budget
deficit
– Recent History
• 2009 Obama Stimulus – Passed 2/17/2009 during Great Recession
– House of Representatives: 246 Democrats voted for; 0 Republicans voted for
– Senate: 58 Democrats voted for; 2 Republicans voted for
• 2017 Trump Tax Cuts and Jobs Act
– House of Representatives: 224 Republicans voted for; 0 Democrats voted for
– Senate: 51 Republicans voted for; 0 Democrats
– What will 2021 bring?
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 6What Tax Changes Can be Expected
During Biden Administration
• Possible Compromise?
– Increase corporate tax rate to 25% instead of 28% (from 21%)
– Phase in of minimum wage to $15 over 6 years (as Florida choose to do
in 2020)
– Increase of capital gains tax rates on households above $1,000,000
– Income tax rate increase for households above $1,000,000 instead of
$400,000
– Other “temporary” changes like expensing v. depreciation
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 7NH Legislative Preview
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 8What will this session look like?
• State vs. Federal climate
• NH Election results
– House
– Senate
– Governor
– Executive Council
• Legislating during a Pandemic: Zoom, Drive-Ins, and Hybrid
Approaches
• Focus on priorities
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 9Top Priorities
• THE BUDGET!
– COVID-19’s impact on State revenues
• Smaller-than-expected deficit ($81.5M) in FY20 (business taxes and real estate
transactions produced more revenue than expected, while hospitality industry tax
revenues declined)
• Governor expects ~$55M surplus in FY21
– Potential tax cuts/rollbacks:
• Business Profits Tax
• Business Enterprise Tax
• Rooms & Meals Tax
• Managing COVID-19
– Testing, PPE, hospital capacity, vaccinations, and distributing federal
funds
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 10Other Priorities
• Redistricting
• Broadband expansion
• Affordable housing
• Family Medical Leave
• Privacy
• Health care
– Associated health plans
– Mental health and substance abuse prevention
– Prescription drug costs
– Telemedicine
• Child protection
• Net metering
• Childcare
• Right-to-Work
• COVID-19 liability for employers
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 11SECOND DRAW PPP LOANS
12
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 //
(603) 224.2381PPP: Second Draw Loan
Eligibility
• Narrower Eligibility from 1st Draw Loans
• Have Prior PPP Loan
• Have used, or will use, all of the proceeds of a PPP First Draw
loan for authorized purposes on or before the expected date of
disbursement of the Second Draw PPP Loan.
• Employee Count
– Business has less than 300 full-time, part-time or seasonal employees.
• This is down from the 500 person allowance for First Draw PPP loans
• Can demonstrate at least a 25% reduction in gross receipts
between at least one comparable quarters in 2020 compared to
2019
• Application Period:
- Now through March 31, 2021
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 13PPP: Second Draw Loan
Eligibility
• Can only receive one (1) Second Draw PPP Loan
• Business must not have permanently closed
– However, a borrower that has temporarily closed or suspended its
business remains eligible for a Second Draw PPP Loan.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 14PPP: Second Draw Loan
Revenue Reduction
• Eligible if EITHER:
– Can show a 25% reduction in revenue (gross receipts) in any single calendar
quarter (Jan – March, April – June, July – Sept; Oct – Dec) in 2020 compared to
that quarter in 2019;
• OR
– If in business for all of 2019, can alternatively show an overall annual reduction
from 2019 to 2020 of 25% or more using tax returns
– Cannot cherry pick any three months or any 90-day period in 2020 compared to
same period in 2020
– If not in business for all of 2019, can still use the quarterly comparison method
for quarters business was operating in 2019 compared to certain quarters in 2020.
• Special rules if not open at all in 2019 but open between 1/1/2020 and before 2/15/20
– Example: “A borrower with gross receipts of $50,000 in the second quarter of
2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced
a revenue reduction of 40 percent between those quarters, and is therefore
eligible for a Second Draw PPP loan (assuming all other eligibility criteria are
met).”
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 15PPP: Second Draw Loan
Revenue Reduction
• “Gross receipts” includes all revenue in whatever form received or accrued (in
accordance with the entity’s accounting method – cash or accrual) from
whatever source, including from the sales of products or services, interest,
dividends, rents, royalties, fees, or commissions, reduced by returns and
allowances.
• Gross receipts do not include the following: capital gains, taxes collected for and
remitted to a taxing authority if included in gross or total income (such as sales
or other taxes collected from customers and excluding taxes levied on the
concern or its employees); proceeds from transactions between a concern and its
domestic or foreign affiliates; and amounts collected for another by a travel
agent, real estate agent, advertising agent, conference management service
provider, freight forwarder or customs broker.
• All other items, such as subcontractor costs, reimbursements for purchases a
contractor makes at a customer's request, investment income, and employee-
based costs such as payroll taxes, may not be excluded from gross receipts.
• Gross receipts of a borrower must be aggregated with gross receipts of its
affiliates.
• Gross receipts DO NOT include any forgiven PPP loans or EIDL advances
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 16PPP Second Draw Loans
Maximum Loan Amount
• Lesser of (i) 2 ½ months of the borrower’s average monthly
payroll costs or $2 million.
• Relevant time period for calculating payroll costs = EITHER
– 2019 calendar year, or
– the twelve-month period prior to when the loan is made (unless self-
employed sole proprietors or independent contractors), or
– 2020 calendar year.
• Special rule for “seasonal” businesses
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 17PPP 2nd Draw Loans
Special Rules for Self-Employed
• How to calculate:
– For a borrower that has income from self-employment and does not
have employees, the maximum loan amount is the lesser of:
(A) the product obtained by multiplying:
(1) the net profit of the borrower in 2019 or 2020, as reported on IRS Form 1040
Schedule C, that is not more than $100,000, divided by 12; and
(2) 2.5 (or, only for a borrower assigned a NAICS code beginning with 72 at the time
of disbursement as defined in subsection (f)(10), 3.5).
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 18PPP 2nd Draw Loans
Special Rules for Self-Employed
• How to calculate:
– For a borrower that has income from self-employment and has
employees, the maximum loan amount is the lesser of:
(A) the product obtained by multiplying:
(1) the sum of
(i) the net profit of the borrower in 2019 or 2020 (at the
election of the borrower), as reported on IRS Form 1040 Schedule C,
that is not more than $100,000, divided by 12;
PLUS
(ii) the average total monthly payment for employee payroll
costs incurred or paid by the borrower during the same year elected
by the borrower; by
(2) 2.5 (or, only for a borrower assigned a NAICS code beginning
with 72 at the time of disbursement as defined in subsection (f)(10),
3.5); or
(B) $2,000,000.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 19PPP 2nd Draw Loans
Special Rules for Partnerships/LLCs
• How to calculate:
– The maximum amount of a Second Draw PPP Loan to a borrower that files taxes as a
partnership is calculated as the lesser of:
(i) the product obtained by multiplying:
(A) the sum of
(1) net earnings from self-employment of individual general
partners in 2019 or 2020 (at the election of the borrower), as reported on
IRS Form 1065 K-1, reduced by section 179 expense deduction claimed,
unreimbursed partnership expenses claimed, multiplied by 0.923537, that
is not more than $100,000, divided by 12; and
(2) the average total monthly payment for employee payroll costs
incurred or paid by the borrower during the same year elected by the
borrower; by
(B) 2.5 (or, only for a borrower assigned a NAICS code beginning with 72 as defined
in subsection (f)(10) at the time of disbursal, 3.5); or
(ii) $2,000,000.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 20PPP 2nd Draw Loans
Special Rules for Hospitality Businesses
• Eligible for 2nd round loans if 300 employees or fewer per
location (instead of 300 in total).
• Maximum loan amount is equal to three-and-a-half (3.5)
months of payroll costs rather than two-and-a-half (2.5)
months.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 212nd Draw PPP Loans – General Terms
• Like 1st Draw PPP Loans:
– No collateral will be required.
– No personal guarantees will be required.
– The interest rate will be 100 basis points or one percent,
calculated on a non-compounding, non-adjustable basis.
– The maturity is five years.
• Generally subject to same forgiveness provisions as First
Draw PPP loans
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 222nd Draw PPP Loans – Expanded Uses
Initially, PPP loan proceeds could only be used for the following:
• Payroll costs;
– Note, to the extent there was doubt about whether group life,
disability, vision, or dental insurance could be included as “payroll
costs,” the new legislation clarifies that these expenses are included
and thus are eligible uses and qualify for loan forgiveness.
• Payments of interest on any mortgage obligation (excluding
prepayments);
• Rent (including rent under a lease agreement);
• Utilities;
• Interest on any other debt obligations that were incurred
before the applicable “covered period” of the loan (i.e., the
period during which permitted uses of PPP loan proceeds
would be eligible for forgiveness).
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 232nd Draw PPP Loans – Expanded Uses
The new legislation broadens what PPP loan proceeds can
be used for (but still must use 60%+ for payroll costs to
receive full forgiveness):
– “Covered operations expenditures”
• business software or cloud computing expenses for business operations,
product or service delivery, payroll processing, payment, or tracking,
human resources, sales and billing functions, or accounting or tracking of
supplies, inventory, records, and expenses.
– “Covered supplier costs”
• supplier payments that are essential to the borrower’s operations and were
made either (1) pursuant to a contract, order, or purchase order in effect
prior to the covered period, or (2) with respect to perishable goods, pursuant
to a contract, order, or purchase order before or during the covered period.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 242nd Draw PPP Loans – Expanded Uses
• The new legislation broadens what PPP loan proceeds
can be used for (but still must use 60%+ for payroll costs
to receive full forgiveness):
– “Covered worker protection expenditures”
• operating costs or capital expenditures incurred by a borrower, during the
period beginning on March 1, 2020 and ending upon the expiration of the
presidential national emergency declaration with respect to COVID-19, to
facilitate adoption of business activities to comply with applicable laws and
guidance relating to COVID-19. For example, this could include
expenditures on drive-through improvements, ventilation or filtration
systems, physical barriers, expansion of business space, establishment of
health screening capabilities, or other assets as determined by the SBA in
consultation with HHS and the Secretary of Labor, as well as personal
protective equipment (PPE).
– “Covered property damage costs”
• costs relating to damage and vandalism or looting due to public
disturbances in 2020 that were not covered by insurance or other
compensation.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 252nd Draw PPP Loans
Loan Application Documentation Issues
• If use 2019 Payroll to calculate 1st Draw and 2nd Draw, and use the same
lender, do not need to submit any additional documentation for the payroll
calculation.
• For loans with a principal amount greater than $150,000, the applicant must
also submit documentation adequate to establish that the applicant
experienced a revenue reduction of 25% or greater in 2020 relative to 2019.
Such documentation may include relevant tax forms, including annual tax
forms, or, if relevant tax forms are not available, quarterly financial
statements or bank statements.
– Can use unfiled, but signed, 2020 IRS forms
• For loans with a principal amount of $150,000 or less, such documentation
is not required at the time the borrower submits its application for a loan,
but must be submitted on or before the date the borrower applies for loan
forgiveness. If a borrower does not submit an application for loan
forgiveness, such documentation must be provided upon SBA’s request.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 262nd Draw PPP Loans
Loan Application Documentation Issues
Documenting payroll costs (if different lender or do not use 2019 costs):
• At the time an applicant submits its loan application form, it must submit
the following unless the documentation was submitted to the lender for the
First Draw PPP Loan (i.e., the applicant used calendar year 2019 figures to
determine both its First Draw PPP Loan amount and its Second Draw PPP
Loan amount, and the lender for the applicant’s Second Draw PPP Loan is
the same as the lender that made the applicant’s First Draw PPP Loan):
• If the applicant is not self-employed, the applicant’s Form 941 (or other tax
forms containing similar information) and state quarterly wage
unemployment insurance tax reporting forms from each quarter in 2019 or
2020 (whichever was used to calculate payroll), as applicable, or equivalent
payroll processor records, along with evidence of any retirement and
employee group health, life, disability, vision and dental insurance
contributions, must be provided. A partnership must also include its IRS
Form 1065 K-1s.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 272nd Draw PPP Loans
Loan Application Documentation Issues
Documenting payroll costs (if different lender or do not use 2019 costs):
• If the applicant is self-employed and has employees, the applicant’s 2019 or
2020 (whichever was used to calculate loan amount) IRS Form 1040
Schedule C, Form 941 (or other tax forms or equivalent payroll processor
records containing similar information) and state quarterly wage
unemployment insurance tax reporting forms from each quarter in 2019 or
2020 (whichever was used to calculate loan amount), as applicable, or
equivalent payroll processor records, along with evidence of any retirement
and employee group health, life, disability, vision and dental insurance
contributions, if applicable, must be provided. A payroll statement or
similar documentation from the pay period that covered February 15, 2020
must be provided to establish the applicant was in operation on February
15, 2020.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 282nd Draw PPP Loans
Loan Application Documentation Issues
Documenting payroll costs (if different lender or do not use 2019 costs):
• If the applicant is self-employed and does not have employees, the
applicant must provide (a) its 2019 or 2020 (whichever was used to calculate
loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was
used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee
compensation received (box 7), invoice, bank statement, or book of record
that establishes that the applicant is self-employed; and (c) a 2020 invoice,
bank statement, or book of record to establish that the applicant was in
operation on or around February 15, 2020.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 292nd Draw PPP Loans
Loan Application
• Note, just like the First Draw PPP Loan, a Borrower must make a number of
certifications, including that:
– “Current economic uncertainty makes this loan request necessary to support the ongoing
operations of the Applicant.”
– The funds will be used to retain workers and maintain payroll; or make payments for
mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs,
covered supplier costs, and covered worker protection expenditures as specified under the
Paycheck Protection Program Rules; I understand that if the funds are knowingly used for
unauthorized purposes, the federal government may hold me legally liable, such as for
charges of fraud.
– I understand that loan forgiveness will be provided for the sum of documented payroll
costs, covered mortgage interest payments, covered rent payments, covered utilities, covered
operations expenditures, covered property damage costs, covered supplier costs, and covered worker
protection expenditures, and not more than 40% of the forgiven amount may be for non-
payroll costs. If required, the Applicant will provide to the Lender and/or SBA
documentation verifying the number of full-time equivalent employees on the Applicant’s
payroll as well as the dollar amounts of eligible expenses for the covered period following
this loan.
– The Applicant has not and will not receive a Shuttered Venue Operator grant from SBA.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 30Questions?
This Webinar is provided for general education and guidance
only, and does not constitute legal advice.
Orr-reno.com // 45 S. Main Street // Concord, NH 03301 // (603) 224.2381 3145 S. Main Street Concord, NH 03301 603.224.2381 tsayess@orr-reno.com lnadeau@orr-reno.com
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