As we begin the holiday season, we hope that you and yours are staying healthy and safe.
Sorry, No Surprises Today
We still do not have the next stimulus bill. And Washington is moving very slowly. In fact, Congress is taking a week by week approach to funding the government. According to the AICPA today, we could get a stimulus bill next week. It could also be the week after.
The Good News
The most likely framework for a stimulus bill is the $908 billion “Gang of Eight” Bipartisan Emergency COVID Relief Act of 2020. Most importantly, it contains a provision to restore the federal deductibility of expenses paid with PPP loan funds. Unsurprisingly, Treasury is objecting.
The proposed Act also includes a second round of PPP loans for those businesses that have suffered a 30% drop in their gross receipts in any quarter of 2020 compared to the same quarter of 2019.
Please see our last client alert and consider adding your voice to those calling for the passage of this legislation.
If your loan is less than $2 million, or if you just want to have a good weekend, you may want to stop reading now.
The Bad News
On December 9th, Treasury and the SBA issued FAQ #53 regarding the PPP Necessity Questionnaires. These questionnaires are initially going out to borrowers whose loans, together with their affiliates, exceed $2 million. The SBA plans to use the borrower’s circumstances and actions, both before and after their initial PPP loan application when determining if the loan was necessary and the required certification was made in good faith. While a borrower’s actions immediately after the loan funding may be germane, at no point should the borrower’s financial condition matter. The CARES Act specifically stated that uncertainty initially caused by the Coronavirus resulted in all businesses being impacted. Thus, it appears that Congress intended that all loans compliant with the statute were to be considered necessary.
Once again, it appears that Treasury and the SBA are attempting to substitute their judgment for that of Congress. The application of hindsight to the question of necessity seems especially inconsistent with Congressional intent.
If you receive one of these questionnaires, we can help you draft your response. But we will also strongly advise you to seek the advice of counsel.
As always, if you have questions about your specific situation, please don’t hesitate to contact your LSL partner or team member.
We will keep you posted if a stimulus bill passes or we receive any additional significant guidance from Treasury and the SBA.