SBA Releases FAQs for PPP Second Draw Loans
Further Guidance for Calculating Gross Revenue and Maximum PPP2 Loan Amounts
By Austin Coyan, CPA, CFE
After eligibility was expanded for a second round of PPP loans in late December, the SBA released a frequently asked questions form on January 19, 2021, to provide further guidance on the PPP loan program. Covered in the FAQ are details about the calculation of gross revenue and the maximum loan amount for the second draw PPP.
The FAQ is a lengthy eighteen pages, but the following are some of the key items to note that will help make the PPP2 process clearer for the calculation of gross revenue and reductions:
- Do I need to include PPP1 proceeds when calculating gross revenue? PPP1 proceeds should be excluded when calculating gross revenue.
- If I acquired a business with common management in 2020, do I include that businesses’ revenue when calculating gross revenue? If you acquired a business with common management (an “affiliate”) during the year, then the prior revenue of that affiliate may need to be included in your calculation.
- What periods can I use to determine the 25% reduction in gross receipts? The 25% reduction in a quarter is based on a calendar quarter. Calendar quarters include January-March, April-June, July-September, and October-December. This analysis will help determine if you qualify for a Second Draw PPP loan.
- How do I calculate gross revenue based on my tax return information?
- For self-employed individuals other than farmers and ranchers (IRS Form 1040 Schedule C): add lines 4 and 7.
- For self-employed farmers and ranchers (IRS Form 1040 Schedule F): add lines 1b and 9.
- For partnerships (IRS Form 1065): add lines 2 and 8 then subtract line 6.
- (Please note: Farm partnerships may be treated differently since there would only be net income from the farm reported and not the gross revenue from the farm.)
- For S-Corporations (IRS Form 1120-S): add lines 2 and 6 then subtract line 4.
- For C-Corporations (IRS Form 1120): add lines 2 and 11 then subtract the sum of lines 8 and 9.
- For nonprofit organizations (IRS Form 990): add lines 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Part VIII.
- For nonprofit organizations (IRS Form 990-EZ): add lines 5b, 6c, 7b, and 9 of Part I.
- Limited Liability Companies (LLCs) should follow the instructions that apply to their tax filing status in the reference periods.
- What if I file multiple Schedule Cs on the same Form 1040? Taxpayers that file multiple Schedule Cs must add each of the figures together to determine if they meet the 25% reduction in revenue.
- Businesses in the accommodation and food service sectors: Businesses with a NAICS code starting in 72 are allowed a 3.5 multiple on their average payroll costs for PPP2 loans.
- What’s the maximum about of PPP2 I can obtain? The PPP2 cap for filers is $2M with corporate groups being limited to $4M in total.
The SBA released new guidance on forgiveness as well. We are currently reviewing this new guidance and the impact it will have on you and your business. Be on the lookout for more information to come.
As always, if you have specific questions or need assistance, make sure to contact your Adams Brown advisor.