The Coronavirus Response and Relief Act — What You Need to Know About the Second Largest Stimulus Bill in HistoryDecember 28, 2020 – Client Alert
On December 27, 2020, the President signed into law a $900 billion coronavirus relief bill as part of a larger $1.4 trillion omnibus spending and appropriations bill. The new stimulus bill is the long-awaited sequel to the CARES Act (the largest stimulus bill in history), which was passed on March 27, 2020, when the COVID-19 pandemic was still in its relative infancy.
The omnibus spending bill is a hefty 5,593 pages, the full text of which was released just hours before Congress began the process of voting it into law. We are providing this executive summary of the portion of the bill denominated the Coronavirus Response and Relief Supplemental Appropriations Act (the “Coronavirus Relief Act”) to alert clients to the potential benefits they may be entitled to and relevant modifications of the CARES Act.
There are many additional intricacies to the Act that will be explored in further alerts, and undoubtedly many more regulations and implementations to come. In the meantime, our attorneys are ready to help navigate the complexities of the new legislation across a range of disciplines, including its implications for employment, real estate, tax, bankruptcy, and other practices.
The Paycheck Protection Program — Revised and Renewed
The now-familiar Paycheck Protection Program (PPP) was perhaps the largest signature creation of the CARES Act. The small business lending program saw more than $500 billion in forgivable loans disbursed to over 5 million borrowers. The program faced its share of criticism for its convoluted application and forgiveness process and for unduly favoring established, institutional borrowers with the resources and know-how to get their loan applications through.
The new regulations aim to simplify and correct certain aspects of the first round of PPP funding and to reopen a second round of funding for the hardest hit businesses.
Second Round PPP Loans
The big headline on the PPP front is a new round of funding. Borrowers who previously obtained a PPP loan under the CARES Act may be eligible for a second loan. But not all borrowers will qualify. The new eligibility rules limit the second draw funds to those companies who had a significant revenue decline during 2020. In particular, to be eligible, a borrower must have had a single quarterly decline in gross receipts of at least 25% as compared to the same quarter in the prior year (e.g., comparing Q2 2020 to Q2 2019).
The maximum loan amount is calculated as 2.5 times the company’s average monthly payroll, or $2 million, whichever is lower. For the most part, the new loans reincorporate many of the familiar rules from the first PPP round—e.g., in order to achieve maximum forgiveness, loan proceeds should be spent at least 60% on payroll.
As before, we can expect the SBA to come out with further rules, regulations, and clarifications governing the new lending.
One of the big end-of-year questions regarding PPP loans involved the tax treatment of expenses paid by loan proceeds. While the CARES Act spelled out that the forgivable loans themselves would not be treated as taxable income, the Act was silent as to the tax treatment of expenses. The IRS recently released a notice stating that such expenses would not be deductible, which would have saddled borrowers with significant unexpected tax liability. The new Coronavirus Relief Act reverses this decision—expenses paid by PPP loan proceeds may be deducted as usual, notwithstanding the exclusion of the loan amount from taxable income.
Clarifications of Existing PPP Procedures
For those companies that have not yet completed their forgiveness applications, there are a few simplifications and clarifications to the existing loan program worth noting.
First, borrowers can now use PPP funds for additional allowable expenses (beyond the payroll, rent, and utilities expenses allowed under the CARES Act), including certain covered supplier costs, software, and cloud computing expenses, and worker protection expenditures. The latter category includes things like personal protective equipment, improved air filtration, and other modifications designed to minimize the risk of workplace COVID-19 exposure.
Second, for borrowers who obtained loans up to $150,000, the forgiveness application process has been dramatically streamlined. Borrowers should look for the SBA to put out a new, shorter application shortly.
Third, the SBA will be developing an audit plan to provide clearer guidelines on when and whether they will be auditing specific loan forgiveness applications.
Updates to the Families First Coronavirus Response Act (FFCRA)
The Families First Coronavirus Response Act (FFCRA) is scheduled to expire on December 31, 2020. The new Coronavirus Relief Act does not extend this expiration date. Rather, it extends until March 31, 2021 the opportunity for employers to seek tax credits for wages paid for FFCRA qualifying emergency paid sick leave or emergency paid Family and Medical Leave Act (FMLA).
Practically, this means that for the period of January 1, 2021 to March 31, 2021, employers may choose to, but do not have to continue to make emergency paid sick leave and emergency paid FMLA leave available to their employees. If employers do choose to make it available for an additional three months in 2021, they need to do so under the same requirements and conditions as the FFCRA, so that they may seek tax credit for any such qualifying wages paid out.
While not strictly impacted by the new stimulus bill, it is important to note that California and Los Angeles County enacted supplemental paid sick leave requirements to cover employers that were not covered by the FFCRA, and each of those are scheduled to expire on December 31, 2020. Likewise, at this time there is no extension of that deadline.
Because the legal requirements of the FFCRA expire on December 31, 2020, and the new Coronavirus Relief Act extends the tax credits only for three months, it appears that there is no renewal on January 1 of the amount of available emergency paid sick leave. If an employee has previously used 80 hours of emergency paid sick leave under the FFCRA and the employer sought a tax credit for those wages, that employee is not eligible for another 80 hours beginning on January 1. With respect to emergency paid FMLA, if the employer has a policy allowing FMLA to be used on a calendar-year basis, rather than a rolling 12-month period, the amount of available emergency paid FMLA leave for which an employer can seek a tax credit may renew with the new year. However, the new bill does not specifically address either of these issues, so additional guidance may be released.
Rental Assistance & Eviction Moratorium
The new Coronavirus Relief Act also impacts the real estate sector through new rounds of rental assistance and an extension of the federal eviction moratorium.
Section 501 of the new Coronavirus Relief Act allots $25 billion in emergency rental assistance to be distributed by state and local governments. Each state will receive no less than $200 million, which may be used to provide financial assistance for eligible households. The funds may be used for purposes of paying current and past-due rent, utilities, and home energy costs, and a catch-all category of expenses defined as “other expenses related to housing” incurred as a result of COVID-19.
Eligible households may receive up to 12 months of assistance and, if necessary, an additional 3 months of assistance, subject to the availability of funds. The relief is targeted at households (a) that are at or below 50% of the area median income or (b) where one or more members of the household have been unemployed for 90 days or longer. From an administrative standpoint, landlords may apply for such financial assistance on behalf of their tenants provided that (i) the landlord obtains the tenant’s signature (electronic signatures are sufficient), (ii) the tenant is provided with the application documents and (ii) any payments received by the landlord are used to satisfy the subject tenant’s rental obligations.
Section 502 modestly extends the rental eviction moratorium issued by the Centers for Disease Control and Prevention through January 31, 2021 (it was previously set to expire at the end of the year). California’s eviction moratorium (AB-3088) expires at the same time, although there is a proposal in the state legislature to extend the statewide moratorium through the end of 2021.
Lastly, building on the protections outlined in Section 4013 of the CARES Act, the new stimulus bill extends the temporary suspension of generally accepted accounting principles requirements for the Troubled Debt Restructuring classifications on loan modifications so that banking institutions, including life insurance companies, can continue to work with their commercial real estate borrowers. Section 541 of the new stimulus bill extends such temporary relief under the CARES Act for an additional year, until January 1, 2022. The new bill also clarifies that insurance companies are included in this relief.
Read our April 1, 2020 client alert on real estate implications of the CARES Act for additional background.
All Aboard the Omnibus
As one might expect, there is quite a lot in the end of year appropriations act beyond COVID-19 relief. Commentators and legal analysts are only now beginning the process of untangling all of what the omnibus bill does.
By way of example, the entertainment and intellectual property world saw two new significant pieces of legislation work their way into the final omnibus that have nothing to do with COVID-19: The Felony Streaming Act and the Copyright Alternative in Small-Claims Enforcement Act of 2020 (CASE Act). Each merits its own exploration in a further article. In the meantime, check out Partner Aaron Moss' blog post in Copyright Lately about this topic. Suffice it to say that this new spending bill will provide fertile ground for legal commentators everywhere for some time to come.