CARES Act: What Just Happened? Week of January 18, 2021

Kranz receives updates on the CARES Act and how businesses are responding to impacts of the coronavirus through communications with our consultants, valued clients, partner firms, and legal and tax service providers. In our commitment to keeping you informed, we hope that our sharing of this information regularly is of value to you.

Contents Summary

  • Key funding elements of Consolidated Appropriations Act, 2021 signed into law December 27, 2020, including business and PPP provisions.
  • Interim Final Rules 26 and 27 providing consolidated guidance on PPP forgiveness and Second Draw Loans
  • Updates to PPP Frequently Asked Questions
  • PPP Loan Forgiveness Update

Consolidated Appropriations Act, 2021

(CAA 2021)

Signed into law December 27, 2020, the Act (H.R. 133) consists of $1.4 trillion in funding for over two dozen major federal fiscal year 2021 activities and a $900 billion COVID-19 stimulus package. At $2.3 trillion it exceeds the $2.2 trillion CARES Act of March 2020 and, at 5,593 pages in length is the longest bill ever passed by Congress.

Two subsections of the Act pertain to COVID-19 related stimulus funding, Division M – Coronavirus Response and Relief Supplemental Appropriations Act (pages 1823 – 1923), and Division N – Additional Coronavirus Response and Relief (pages 1924 – 2467).

Division M – Coronavirus Response and Relief Supplemental Appropriations Act, 2021

This section identifies funding for specific federal department programs and activities, summarized here for readers who may have an interest given the nature of their business.

  • Department of Commerce – $300 million for “Fisheries Disaster Assistance”
  • Department of Homeland Security – $2 billion for FEMA “Disaster Relief Fund”
  • Department of Health and Human Services – $55 million for coronavirus related FDA salaries and expenses, $8.8 billion for CDC activities and programs through FY 2024, $1.3 billion for NIH activities and programs through FY 2024, $4.3 billion for substance abuse and mental health services, $10 billion to supplement state childcare assistance programs, $22.9 billion for testing, clinical research, and vaccine development and distribution through FY 2024; $3 billion to reimburse eligible health care providers for lost revenue or increased costs
  • Department of Education – $81.9 billion for an “Education Stabilization Fund” to support schools and universities through FY 2022
  • Department of Transportation – $2 billion to support the infrastructure and employees of the air travel industry, $10 billion for “Highway Infrastructure Programs”, $655 million for the “National Railroad Passenger Corporation”, and $14 billion for “Transit Infrastructure Grants”
Division N – Additional Coronavirus Response and Relief

This section introduces new regulations or clarifies earlier guidance pertaining to the relief available to small businesses. With respect to the latter, key elements are the following.

Changes for Business Entities

  • For two years starting January 1, 2021, allows a 100% business expense deduction for meals (as opposed to the current 50%), as long as the expense is for food or beverages provided by a restaurant.
  • Dollar for dollar tax credits for paid sick and family leave as provided for under the FFCRA is extended, at the discretion of employers, from December 31, 2020 to March 31, 2021. However, no change to the amount of hours available for credit has been made.
  • Extends from April 30, 2021 to December 31, 2021, the date by which any employer payroll tax payments (employee 6.2 share of Social Security) deferred by the employer must be repaid.
  • Extends the employee retention tax credit (ERTC) through June 30, 2021, and includes health plan premium expenses in the definition of “qualified wages”. Also increases the refundable payroll tax credit to a maximum of $14,000 per employee (up from $5,000) by adjusting the calculation from 50 percent of wages paid to 70 percent of wages paid on up to $10,000 per quarter. In addition, employers with up to 500 employees are eligible for this credit (previously the limit was 100), and businesses will now be able to take the Employee Retention Tax Credit AND receive a PPP loan.

 Changes to Paycheck Protection Program (PPP) Loans

  • New round of PPP loans with $284.5 billion of funding available through March 31, 2021.
  • $40 billion in funding has been specially allocated for borrowers with 10 or fewer employees.
  • Existing borrowers interested in a Second Draw Loan must show a decline in gross receipts of at least 25% during one quarter of 2020 vs 2019 and have 300 or fewer employees. PPP loan amounts forgiven in 2020 are excluded from gross receipts.
  • New borrowers may select either CY2019 or CY2020 as their base year for the purposes of calculating their loan amount.
  • New borrowers and those seeking a Second Draw loan must have been in operation by February 15, 2020, and may not be primarily engaged in lobbying activities, be organized under the laws of China or Hong Kong, have a board member who is a resident of China, have significant operations in China or Hong Kong, or be a public company
  • Borrowers seeking a Second Draw loan must still be in operation but will be ineligible for a Second Draw loan if their First Draw loan is under review by the SBA until the time that review is completed.
  • Covered period can be selected for any period between 8 and 24 weeks in length.
  • Second Draw loan amounts are capped at $2 million and will be based on 2.5 X average monthly payroll for CY 2019 or the prior twelve months. Restaurants/hotels receive 3.5 times.

 Changes to Paycheck Protection Program (PPP) Forgiveness

  • For existing borrowers (whose loans have not been forgiven) and new borrowers, creates new covered cost categories eligible for forgiveness: 1) operations expenses (software, product or service delivery), 2) employer-provided PPE, 3) property damage from public disturbances in 2020, and 4) supplier costs for essential goods and services provided under a contract dated prior to the start of the covered period.
  • Reverses earlier IRS guidance by allowing the deduction of expenses paid with a PPP loan that is fully or partially forgiven. Loan forgiveness continues to be non-taxable income. Note: California currently conforms to existing IRS guidance so expenses are not deductible and forgiveness is not taxable.
  • With respect to loan forgiveness being reduced for failure to retain FTE levels, new borrowers have until the end of the covered period to apply exceptions to the requirement. Existing borrowers’ deadline for reaching their prior FTE level remains December 30, 2020.
  • Creates a simplified forgiveness process for loans under $150,000 which will include a new forgiveness application and eliminate reductions to the forgiven amount due to reductions in FTEs or compensation levels.
  • Eliminates the reduction in PPP forgiveness for borrowers receiving an EIDL advance

Additional Reference Sources

Implementation of PPP Provisions of CAA 2021

Title III of the CAA 2021, “Continuing the Paycheck Program and Other Small Business Support” (page 2,042) is also referred to as the “Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act”. On January 6, 2021, the Treasury issued Interim Final Rule 26 – Paycheck Protection Program as Amended by Economic Aid Act, and Interim Final Rule 27 – Second Draw Loans. Expectations are that lenders will begin accepting new PPP loan applications within the next one to two weeks.

Interim Final Rule 26

The Economic Aid Act extends the authority to make PPP loans through March 31, 2021, and revises certain PPP requirements. While it incorporates the Economic Aid Act amendments, most of the IFR restates all previous regulatory provisions to provide lenders and borrowers easy access to a single document to consult on borrower and lender eligibility, loan application and origination requirements, as well as general rules on PPP loan increases and forgiveness. This IFR is nicely organized around questions and answers of interest to borrowers (16), lenders (11), or both (10).

Additional rules related to second draw PPP loans are published separately in IFR 27 and the SBA intends to issue a consolidated rule governing all aspects of loan forgiveness in the coming weeks.

IFR 26 governs new PPP loans made under the Economic Aid Act, as well as applications for loan forgiveness on existing PPP loans where loan forgiveness has not already been made. IFR 26 does not alter any provision of existing PPP loans unless specifically mentioned in the Economic Aid Act. However, consistent with its authority under section 1109 of the CARES Act the Treasury does use this IFR to allow borrowers of first draw PPP loans to use 2019 or 2020 to calculate their maximum loan amount.

Interim Final Rule 27

This IFR implements Section 311, Second Draw Loans, of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, beginning on page 2,064 of the CAA 2021.

Under generally the same terms as for First Draw PPP loans Section 311 provides that the SBA may guarantee loans under the PPP Second Draw Program through March 31, 2021 to borrowers that previously received a PPP loan and have used or will use the full amount of the initial PPP loan before the expected date of disbursement of the Second Draw PPP Loan. SBA guarantees 100 percent of Second Draw PPP Loans and may forgive up to the full principal loan amount. The key differences between First Draw PPP Loans and Second Draw PPP Loans are described in this IFR, which explains the loan terms, eligibility requirements, and application process for Second Draw PPP Loans.

PPP FAQ and Interim Final Rule Updates

On December 9 the Borrower FAQs were updated with #53:

Q 53: Why are some PPP borrowers receiving a Loan Necessity Questionnaire (SBA Form 3509 or 3510)?

A: SBA is reviewing all loans of $2 million or more, and other loans as appropriate, for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. As part of this process, SBA is providing a Loan Necessity Questionnaire to lenders for them to provide to PPP borrowers that, together with their affiliates, received loans of $2 million or more. Upon request from their lender, borrowers should return the completed questionnaire to their lender within 10 business days of receipt. The information that borrowers provide on the questionnaire will help SBA assess those borrowers’ certification in their loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” as required by the CARES Act. The full SBA response to this question which includes how the questionnaire will be evaluated can be found here.

Loan Forgiveness Update

All PPP lenders have now implemented loan forgiveness operations although neither the Treasury nor the SBA have yet provided quantified updates on the progress of loan forgiveness activity. However, Numerated, a digital sales and lending platform for financial institutions, who is handling PPP loan processing for 100 lenders across the United States has been providing some insight into the forgiveness progress. Numerated’s findings are based on their analysis of 250,000 loans processed on behalf of their lenders. In summary:

  • Approximately one-third of borrowers have submitted a forgiveness application to their lender
  • Approximately 60 percent of the forgiveness applications finalized by the SBA are for loan amounts of less than $50,000 with 30 percent being above $100,000
  • 20 percent of borrowers have applied for partial forgiveness with 16 percent of those doing so due to uncovered use of funds

Additional Resources

Aside from this blog we recommend the following websites for additional information and guidance:

National Venture Capital Associations (

U.S. Treasury (

Small Business Administration:

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