Trump Signs Into Law Bipartisan Paycheck Protection Program Flexibility Act

President Donald Trump has signed into law the bipartisan Paycheck Protection Program Flexibility Act (PPPFA) of 2020 (HR 7010). The legislation aims to expand usability of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s (P.L. 116-136) headliner small business loan program.

PPP in the House

The bipartisan, bicameral-crafted PPPFA makes several changes to the rapidly implemented Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The bill, authored by House Reps. Chip Roy, R-Tex., and Dean Phillips, D-Minn., was approved in the House by a 417-to-1 vote on May 28. After a brief stall in the Senate, the upper chamber cleared the measure by unanimous consent on June 3.

Most notably, the legislation includes some of the following PPP changes:

  • Extends the expense forgiveness period from eight weeks to 24 weeks;
  • Reduces the 75 percent payroll ratio requirement to 60 percent;
  • Extends the two-year loan repayment requirement to five years for future borrowers (existing PPP loans can be extended up to five years if lender/borrower agree);
  • Allows payroll tax deferment for PPP recipients; and
  • Extends the June 30, 2020, rehiring deadline to December 31, 2020.

Trump Eyes Industry-Specific Tax Incentives, Payroll Tax Cut

Trump signed the PPPFA at an outdoor White House signing ceremony on June 5, during which he praised the PPP’s impact on May’s largely surprising jobs report, which marks an increase of 2.5 million jobs. Furthermore, Trump spotlighted additional tax breaks his administration is considering. In addition to reiterating his desire for a payroll tax cut, Trump also noted that the administration is looking into tax incentives for the restaurant and entertainment industries.

“We’re going to be doing things for restaurants and various pieces of the entertainment industry; it will be an incentive whether its deductions or something else, because the restaurants will be harder to come back,” Trump said. “We’re looking at doing an incentive with taxes and will be announcing it pretty soon.”

Looking Ahead to PPP Technical Corrections, Enhancements

Although the PPPFA has received broad support and praise from bipartisan lawmakers and stakeholders, riding shotgun with the loan program’s increased flexibility is a list of remaining unanswered questions and potential issues. While policymakers and taxpayers await more Treasury and SBA guidance, additional legislative text is already in the works to iron out certain wrinkles in previous legislation and related guidance.

“Our colleagues have continued to track the program’s [PPP] operation and recommend further tweaks where necessary. In recent days, Senator Collins helped strengthen and improve the House’s proposed PPP modifications before they passed the bill and sent it to us. And I know the senior Senator from Maine has already identified several more technical fixes for the new legislation that I hope Congress will address,” Senate Majority Leader Mitch McConnell, R-Ky., said from the Senate floor.

Although the ink may still be drying on the PPPFA, Sen. Susan Collins, R-Me., co-architect of the small business loan program, said on June 4 that her staff is currently drafting a PPP technical corrections bill. The next bill is expected to address concerns with PPPFA’s 60 percent “cliff,” among other items.

“Two of my priorities would be to correct what I believe to be a drafting error in the House bill that eliminates partial forgiveness for small businesses with PPP loans who have been unable to retain, recall, or pay their full number of employees due to circumstances beyond the employer’s control,” Collins said in a statement. “The House bill contains a cliff: even if a small employer spent 59 percent out of the 60 percent of the funding designated to pay their employees, none of the loan would be forgiven. The employer would be saddled with debt.” Additionally, Collins noted the next PPP bill would allow for overhead funding to be used for masks and other protective gear for employees.

PPP policy architect Senate Small Business Committee Chair Marco Rubio, R-Fla., has also alluded to more related legislation. “I appreciate the Administration’s flexibility and commitment to address the bill’s inadvertent technical errors that could create unintended consequences for small businesses as they seek forgiveness,” Rubio said in a statement. “If the Administration cannot address these issues, Congress will need to fix them through additional legislation…”

Tax Treatment of Ordinary Business Expenses

Additionally, Sen. John Cornyn, R-Tex., told reporters after attempting to hotline his bill on June 4 that Senate leadership is looking to soon take up the bipartisan Small Business Expense Protection Bill (S. 3612). The bill would clarify that receipt and forgiveness of a PPP loan does not affect the tax treatment of ordinary business expenses. Currently, the measure has only a couple of holds preventing it from reaching the floor, according to Cornyn.  

Under controversial IRS Notice 2020-32, businesses that qualify for PPP loan forgiveness will not be able to deduct certain expenses, including wages, paid for by the loan. “The money coming in the PPP is not taxable. So, if the money that is coming is not taxable, you cannot double dip,” Mnuchin said.

But top bipartisan congressional tax writers immediately voiced disapproval of IRS and Treasury’s position, stating that the IRS guidance goes against congressional intent.

“[A]s was expressed to Treasury during the development of the PPP, we did not intend to deny the deductibility of ordinary and necessary business expenses, nor did these small businesses expect to lose deductions for their business expenses when they applied for a PPP loan,” Senate Finance Committee Chairman Chuck Grassley, R-Iowa, ranking member Ron Wyden, D-Ore., and House Ways and Means Committee Chair Richard Neal, D-Mass., wrote in a recent letter to Mnuchin.

And while many business groups are also commending Congress’s approval of HR 7010, many leaders are calling for more PPP-related legislation. “The PPP changes passed by both chambers are another important step in providing relief to small businesses that otherwise will not survive until the economic recovery phase,” U.S. Travel Association Executive Vice President of Public Affairs and Policy Tori Emerson Barnes said in a statement. However, the Travel Association, similar to other industry trade groups, has called for additional PPP enhancements.

“While this measure does a good job making the PPP work better for businesses that are eligible, other PPP enhancements will be needed to make sure all the key pieces are in place when the recovery begins—in particular, extending eligibility to non-profit and quasi-governmental entities that are vital drivers of local and regional economic development,” Barnes said.

To that end, it remains to be seen how quickly and far-reaching additional PPP changes, enhancements, and clarifications will come to be. And only time will tell whether those changes will come first or primarily through Treasury and SBA guidance, stand-alone bills, or catch a ride with the next anticipated round of economic relief legislation.

“Slow Your Mustang Down”

The Senate’s top Republican tax writer, however, has seemingly pumped the brakes on additional broad relief legislation, while signaling that the engine may be idling, though not off.

“The jobs report underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” Grassley’s spokesperson Michael Zona told Wolters Kluwer in a June 5 email. “Chairman Grassley will work with his colleagues on any potential further coronavirus response legislation if it becomes necessary. It’s too early to say what that legislation might encompass,” Zona added.

However, House and Senate Democratic leadership quickly dismissed the notion of slowing down on the economic relief front. “The May jobs report shows that decisive action by Congress to support small businesses and workers can make a strong difference in our economy,” House Speaker Nancy Pelosi, D-Calif., said. “But with 21 million still out of work and state and local budgets collapsing, now is the worst possible moment to take our foot off the gas.”

Likewise, Senate Minority Leader Chuck Schumer, D-N.Y., reiterated his calls for the Senate’s acceleration on the matter.  “With nearly 20M people out of work and unemployment among African Americans increasing, now’s not the time to be complacent or take a victory lap – we need to act,” Schumer wrote in a tweet.

Yet McConnell has repeatedly communicated his views on the importance of having a clearer picture of previous relief legislation’s effect before taking up more, so that the Senate is better able to draft and pass more narrowly tailored measures. In a June 5 statement, McConnell reiterated, perhaps subtly, his position that future legislation should be specific to issues current and carefully evaluated. “As Senate Republicans have made clear for weeks, future efforts must be laser-focused on helping schools reopen safely in the fall, helping American workers continue to get back on the job, and helping employers reopen and grow.”

By Jessica Jeane, J.D. – Senior News Editor and Content Management Analyst

Wolters Kluwer is by your side to help you stay up-to-date with tax and compliance changes and support your ability to work remotely. Please visit our Coronavirus (COVID-19) Resource Page for Tax & Accounting Professionals.

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