Yesterday, President Joe Biden signed the $1.9 trillion American Rescue Plan Act of 2021 (Act), which includes new pandemic-relief grants for small and mid-sized restaurants and bars; expansion of the Paycheck Protection Program; added flexibility under the Shuttered Venue Grants program; additional targeted relief grants for small businesses in low-income communities; and an extension and expansion of the Employee Retention Tax Credit program. Below are key details of these provisions in the new Act. Companies should consider these various programs, in addition to those available at the state and local level, as a means to continue to weather the COVID-19 pandemic, while being mindful of the appropriate compliance controls.
Restaurant Revitalization Fund
The Act authorizes a new $28.6 billion Restaurant Revitalization Fund to provide grants (not loans) to restaurants, bars, food trucks, and similar places of business. These eligible entities cannot include any publicly traded company or any businesses that own or operate (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names. Affiliated businesses of an eligible entity are those in which the eligible entity owns equity or has the right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.
Eligible entities can apply for up to $5 million in grants per physical location, not to exceed $10 million per eligibility entity and its affiliated businesses. The amount of the grant is based on the eligible entity’s “pandemic-related revenue loss,” which is defined generally as the gross receipts of the eligible entity during 2020 subtracted from the gross receipts of the eligible entity in 2019, if such sum is greater than zero. There are formulas for calculating losses if the eligible entity was not in business during all of 2019. Also, the eligible entity’s pandemic-related revenue losses for an eligible entity will be reduced by any PPP amounts received.
Eligible entities can use grants for a variety of ordinary business expenses, including: payroll costs and paid sick leave; payments of principal or interest on any mortgage obligation; rent; utilities; maintenance and supply expenses; and food and beverage expenses that are within the scope of the normal business practice of the eligible entity before the covered period.
Eligible entities must use these grant funds during a “covered period,” which is defined as beginning on February 15, 2020, and ending on December 31, 2021, or a date to be determined by the Small Business Association (SBA) that is not later than two years after the date of enactment of this section.
The SBA will administer this new grant program. The first three weeks of the grant program will prioritize restaurants owned and operated by women, people of color and veterans, and $5 billion of the total fund is set aside for the first 60 days for businesses that grossed less than $500,000 in receipts in 2019. An eligible entity that fails to use all grant funds or permanently ceases operations on or before the last day of the covered period must return to the Treasury any funds that the eligible entity did not use for the allowable expenses. Similar to other SBA programs, applicants will likely be required to certify that they meet the applicable criteria.
Finally, these grants will be excluded from the eligible entity’s gross income for tax purposes, and eligible entities can deduct these allowable expenses.
The Act expands the Paycheck Protection Program (PPP) eligibility to include additional nonprofits listed in Section 501(c) of the Internal Revenue Code that were not previously included, provided that nonprofit does not engage in more than 15 percent of its activities or receipts from lobbying, and the organization employs not more than 300 employees. PPP eligibility is also extended to internet-only news and periodical publishers, as long as the business has no more than 500 employees per physical location. This publisher organization must certify that the loan will support locally-focused or emergency information. Trade organization under Section 501(c)(6) and social welfare organizations under Section 501(c)(4) should consider the extent that the lobbying restrictions apply.
The Act also adds $7.25 billion for additional PPP “first draw” and “second draw” although the program remains set to expire on March 31, 2021.
Shuttered Venue Grant Program Changes
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) became law, which authorized a new Shuttered Venue Operator Grant (SVOG) program to provide debt-free relief to certain theaters, museums, and live entertainment venues. Under the Economic Aid Act, applicants could not apply for both SVOG grants and PPP loans, but the SVOG program has yet to start accepting applications. As a result, the Act now permits applicants to access both SVOG grants and PPP loans. An entity’s SVOG grant amount will be reduced by the amount of PPP loans received on or after December 27, 2020. As with other programs that prohibit “double-dipping”, applicants should consider documenting the need for such relief and that other contradictory resources have not been received.
EIDL Targeted Advance Funds
The Act provides $10 billion in new funding for a new $10,000 Economic Injury Disaster Loan (EIDL) targeted advance grant that will be available to businesses and nonprofit organizations that previously applied for the original EIDL Advance program, but did not receive a grant. Like the original advance program, these new advance funds do not need to be repaid. In order to qualify under this new program, a business must: be located in a low-income community; have suffered an economic loss of more than 30 percent; and have 300 or fewer employees. The Act also provides $5 billion of funding for $5,000 EIDL grants for eligible entities that have suffered an economic loss greater than 50 percent and which employ no more than 10 employees. Eligible entities cannot apply for this new program on their own; instead, the SBA will reach out via email to those who may qualify and will include instructions on how to determine eligibility and to submit the appropriate documentation.
Employee Retention Credit (ERC) Extension and Expansion
The Act extends the ERC’s current expiration date of June 30 to December 31. This means that the maximum credit for 2021 of $14,000 (two quarters at $7,000 per employee per quarter) will increase to $28,000 per employee for four quarters. A notable change is that the ERC will now be extended to so-called “recovery start-up businesses” which are new businesses that began operations after February 15, 2020, have $1 million or less in annualized gross receipts during a three taxable year measurement period, and would not otherwise satisfy the employer eligibility tests. For these types of businesses, the cap on the maximum qualified wages per employee is $50,000 per quarter, as opposed to other businesses that are capped at $10,000. Also, there is now a special rule for “severely financially distressed employers” whose businesses have suffered 90 percent or greater decline in gross receipts as compared to the same quarter in 2019. They are not subject to the large employer rule that limits the credit only to wages to employees that are not working; thus, they can claim ERC on wages paid to all employees, including those that are teleworking, for instance. Finally, the ERC is now refundable against the employer share of Medicare Tax instead of the Social Security Tax after June 30, 2021. This means that the maximum ERC is no longer reduced by certain credits, but qualified wages for ERC continues to exclude wages taken into account in other tax credits, such as the Work Opportunity Tax Credit and Research Credit.
Combined with the previous federal economic incentive relief programs to combat the economic impact of COVID-19, this is likely the most significant economic relief since the Great Depression and World War II. As experienced during the Great Recession, it is expected that both federal and state law enforcement agencies (in addition to civil regulatory authorities and even whistleblowers) will be vigilant in enforcing the eligibility criteria for these various programs. As such, companies should consider due diligence mitigation efforts before applying for the various relief funding opportunities. Furthermore, as government agencies continue to investigate potential fraud, waste, and abuse (or outright identity theft) associated with these programs, companies should consider protocols to be implemented in the event that government agents do make contact and attempt to avoid miscommunications.
The federal and state governments continue to provide economic assistance to those companies in need. Consider ensuring compliance with the requirements and implementing risk mitigation protocols to help avoid unnecessary issues in the future.