May 7, 2020 –This week the Federal Reserve made loans under Main Street Lending Program available to larger businesses, and the SBA extended the Paycheck Protection Program loan certification safe harbor to May 14.  Implementation of the CARES Act continued this week with clarifications from the SBA, while a policy conflict erupted between the IRS and Congress over federal income tax treatment of PPP loans.  Numerous legislative proposals were also made.

CARES Act Developments

Federal Reserve Expands Main Street Lending Program

On April 30, the Federal Reserve announced it is expanding the scope and eligibility for the Main Street Lending Program.  It raised that maximum size of eligible business from 10,000 employees or $2.5 billion in annual revenue to 15,000 employees or $5 billion in annual revenue.  It also added a “priority loan” option to the program.  The original program had only two options, called the “new loan” and “expanded loan” options.  The three loan options differ in terms of minimum and maximum loan size, the risk retained by the lender, and the repayment schedule. The Federal Reserve advised that the start date for the loan programs will be announced soon.

Federal Reserve Expands PPP to Non-Depository Lenders

On April 30, the Federal Reserve expanded access to its Paycheck Protection Program Liquidity Facility (PPPLF) to non-depository lenders, and expanded the collateral that can be pledged.  SBA-qualified PPP lenders now include banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms.

IRS Clarifies Federal Income Tax Treatment of PPP Loans

On April 30, the IRS issued Notice 2020-32, asserting that recipients of CARES Act PPP loans may not deduct expenses paid for by the money borrowed if the loan is forgiven and the income associated with the forgiveness is excluded from gross income for federal income tax purposes. On May 5, a bipartisan group of congressional representatives, including the chairs of the Senate and House tax committees, Chuck Grassley (R-IA) and Richard Neal (D-MA), formerly alerted the Treasury Department that the Notice runs counter to congressional intent to allow the deductions.

SBA Clarifies Treatment of Rehired Employees for PPP Loan Forgiveness

On May 3, the Small Business Administration updated its CARES Act Paycheck Protection Program FAQ to clarify that employers will not be disqualified for loan forgiveness for failing to meet the requirement to rehire laid off employees if an employee declines the employer’s rehire offer.  See FAQ question 40.

DOL Issues STC Program Reimbursement Guidance

On May 4, the Department of Labor issued guidance regarding the federal reimbursement of certain Short Term Compensation (STC) payments under Title II of the CARES Act.  The STC program, also known as “work-sharing,” is a layoff aversion program in which an employer, under a state-approved plan, reduces the hours for a group of workers. These workers in turn receive a reduced unemployment benefit payment.  The guidance clarifies how states can take advantage of this program as they plan to re-open their businesses

USPTO Launches IP Marketplace for Patents Related to Coronavirus Pandemic

On May 4, the U.S. Patent and Trademark Office launched an online intellectual property marketplace platform, Patents 4 Partnerships, a publicly-available, searchable repository of patents and published patent applications related to the COVID-19 pandemic that are available for licensing.  The new platform is intended to facilitate voluntary licensing and commercialization of innovations in a variety of key technologies.

SBA Extends PPP Loan Certification Safe Harbor to May 14

On May 5, the Small Business Administration extended the CARES Act Paycheck Protection Program loan repayment date for the “necessary” certification safe harbor to May 14 (from May 7) and said that prior to May 14 it would provide additional guidance on how it will review the certification.  The CARES Act requires PPP borrowers to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Borrowers that repay the loan in full by the repayment date will be deemed to have made the certification in good faith.  On May 6, the SBA clarified such repayment would not bar an employer from eligibility for the CARES Act Employee Retention Credit (under the Act, an employer many not take both the credit and a PPP loan). See FAQ questions 43 and 44.

SBA Clarifies Recognition of Affiliates’ Employees for PPP Loan Eligibility

On May 5, the Small Business Administration updated its CARES Act Paycheck Protection Program FAQ to clarify that for purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules. See FAQ question 44.

Legislative Proposals

H.R. 6652: Flexibility for Localities and Eligibility Expansion Act of 2020 (FLEX Act)

On May 1, Representative Don Beacon (R-NE) introduced a bill allowing state and local governments to use relief funds established by the CARES Act and other federal stimulus packages to offset lost revenues.  Those programs currently limit the use of these funds to reimbursement of direct costs incurred for COVID-19 response actions. 

H.R. 6657: Working Under Humanity’s Actual Needs (WUHAN) Recessions Act

On May 1, Representative Jeff Duncan (R-SC) introduced a bill which would eliminate over $27 billion in CARES Act relief funding that is not directly related to COVID-19. 

H.R. 6682: To Provide for a Waiver of the Matching Funds Requirement for the Farmers Market and Local Food Promotion Program and Value Added Producer Grant Program

On May 1, Representatives Annie Kuster (D-NH) and Gus Bilirakis (R-FL) introduced legislation that would increase infrastructure funding for community health centers (CHCs) in the next phase of the CARES Act.  The legislation helps prevent CHCs from having to implement cost-saving measures, such as temporarily reducing staffing, to maintain financial stability.

S. 3589: Legislation to Amend the Higher Education Emergency Relief Fund under the CARES Act

On May 4, Senators Joshua Hawley (R-MO), Marsha Blackburn (R-TN), Martha McSally (R-AZ), and Marco Rubio (R-FL) introduced legislation that would prohibit universities from receiving Higher Education Emergency Relief Funds from the CARES Act if they have an endowment larger than $10 billion.  Representatives Jim Jordan (R-OH) and Ben Cline (R-VA) introduced a companion legislation in the House. 

S. 3593: The FORWARD Act

On May 4, Senators Chris Coons (D-DE), Pat Roberts (R-KS), Catherine Cortez Masto (D-NV), Todd Young (R-IN), Maggie Hassan (D-NH), and Steve Daines (R-MT), along with Representatives Suzan DelBene (D-WA) and Jackie Walorski (D-IN), introduced a bill which would provide targeted tax support to startups and businesses focused on vaccine development and equipment manufacturing to help combat the COVID-19 pandemic.  

S. 3608: Coronavirus Relief Fund Flexibility for State and Local Government Act 

On May 5, Senator John Kennedy (R-LA) introduced legislation that would give state and local governments more flexibility to use the $1.25 billion in funding from the CARES Act for operating expenses unrelated to COVID-19. 

S. 3623: Coronavirus Community Relief Act

On May 6, Senator Martin Heinrich (D-NM) introduced a bill which would provide $250 billion towards small cities and towns with populations under 500,000. Under the Act, the relief funds could be used for lost revenue and for offsetting increases in costs resulting from the COVID-19 pandemic. 

S. 3632: Direct Support for Communities Act

On May 6, Senators Kirsten Gillibrand (D-NY), Chuck Schumer (D-NY), Doug Jones (D-AL), Joe Manchin (D-WV), Sherrod Brown (D-OH), Michael Bennet (D-CO), and Gary Peters (D-MI) introduced legislation that would provide local governments with direct federal relief to be used to pay for essential services and offset lost revenues. The Act would split relief between cities, towns, and counties. 

Click here to go to our COVID-19 Resource Center for more advisories, articles and other content related to the coronavirus pandemic.