Legislative Updates on COVID for the Week of February 7, 2021
Carter L. Alleman, J.D.
Updates to Provider Relief Fund Reporting Portal Process
The Provider Relief Fund (PRF) is a program run by the U.S. Department of Health and Human Services (HHS) that provides funds to certain providers to offset revenue losses and increased expenses due to the COVID pandemic. HHS has distributed funds primarily through Targeted (for specific entities) and General Distribution (through three different Phases of funding). If a provider received more than $10,000 in aggregate from the PRF in 2020, then to avoid recoupment of those funds for most of the General and Targeted distributions, a provider must submit key data to HHS through the Reporting Portal. Previously, HHS had announced that this portal would be available as of January 15, 2021. On January 15, HHS updated its website to revise information on the reporting elements and clarify that the portal is open but only for registration. Given the lack of full functionality to the Reporting Portal, the initial reporting deadline was removed (i.e., February 15 deadline for the first report). According to a new FAQ, HHS will announce the window for submitting the first report. Recipients with funds unexpended after December 31, 2020 have six more months from January 1 – June 30, 2021 to use remaining funds, and then must submit a second and final report no later than July 31, 2021.
With respect to the reporting elements, per the language in the Consolidated Appropriations Act, 2021, HHS is allowing entities to use one of three methods for reporting revenue loss: (1) difference between 2019 and 2020 actual patient care revenue; (2) difference between 2020 budgeted and 2020 actual patient care revenue, provided that the budget was established prior to March 27, 2020 and provided that additional documentation is submitted; and (3) any reasonable method for calculating lost revenue provided that additional information is submitted and recognizing that this option will trigger an increased likelihood of an audit, along with additional timelines if HHS determines that the methodology is not reasonable. Further, if recipients did not expend PRF funds in full by the end of calendar year 2020, then the calculation related to revenue losses are different from 2020 and are not to exceed the difference between: (1) 2019 Quarter 1 to Quarter 2, and 2021 Quarter 1 to Quarter 2 actual revenue; or (2) 2020 Quarter 1 to Quarter 2 budgeted revenue, and 2021 Quarter 1 to Quarter 2 actual revenue. In addition, the document updates information related to reporting responsibility of parent organizations and their subsidiaries.
With respect to the new Reporting Portal, HHS has issued a series of FAQs and a Registration User Guide. According to those documents, registration should take approximately 20 minutes and must be completed within one session.
As a reminder, PRF Reporting Entities that expended $750,000 or more in aggregated federal financial assistance during their fiscal year (including PRF payments and other federal financial assistance) are subject to Single Audit requirements, as set forth in the regulations at 45 CFR 75.501. Reporting Entities must indicate if they are subject to Single Audit requirements during the current fiscal year, and if yes, whether the auditors selected PRF payments to be within the scope of the Single Audit (if known at the time the Reporting Entity submits report).
SBA/IRS Release Regulations and Guidance Related to the PPP
The Economic Aid Act enacted at the end of 2020 as part of the Consolidated Appropriations Act, 2021 established “Second Draw” Paycheck Protection Program (PPP) loans for certain eligible borrowers and made other changes to the underlying program. On Wednesday January 6, 2021, the Small Business Administration (SBA) and the Department of Treasury issued final rules and guidance implementing the new law (links below). Per a recent announcement, these loans will be made available starting this week.
Despite controversy over this issue last year, the new law and subsequent implementing documents establish that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. That particular provision is effective retroactively, as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision. The PPP program is extended through March 31, 2021, after which time loans will be unavailable. As with the first round, the loans will be made on a first come, first serve basis.
Note that the PPP is also open again to first-time eligible borrowers (including newly eligible borrowers) in addition to second draw applicants. The new law allows for certain 501(c)(6) organizations to receive PPP loans. Specifically, 501(c)(6) entities are eligible, provided that not more than 15% of receipts come from lobbying activities; lobbying activities are not more than 15% of total activities; the cost of lobbying did not exceed $1 million during most recent tax year ending before February 15, 2020; and the entity had less than 300 employees. With some exceptions as outlined herein, the mechanics of first and second loans are identical.
To be eligible for a PPP second draw loan, an employer must have used, or will use, the full amount of the initial PPP loan, have no more than 300 employees (500 if more than one location), and demonstrate at least a 25% reduction in gross receipts as compared to the same quarter in 2019 (with caveats for new businesses). Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts. A borrower can provide annual tax return forms to substantiate its revenue reduction. The maximum loan amount (except for certain entities in the hospitality industry) is the lesser of: $2 million or 2.5 times the average monthly payroll during 2019 or during one-year period before the loan date, whichever the borrower chooses.
For Second Draw PPP Loans, the number of employees per physical location is limited to 300 rather than 500 for most borrowers. With some exceptions, the same affiliation rules apply. Businesses that are part of a single corporate group shall in no event receive more than $4 million of Second Draw PPP Loans in the aggregate.
If your First Draw PPP loan is under review by SBA or information in SBA’s possession indicates that the borrower may have been ineligible for the First Draw PPP Loan, the lender will receive notification from SBA when the lender submits an application for a guaranty of a Second Draw PPP Loan and will not receive an SBA loan number until the issue related to your First Draw PPP Loan is resolved.
The applicant must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form, which is forthcoming) or the lender’s equivalent form including the required certifications. Documentation requirements are described in the Interim Final Rules (IFRs).
Wednesday’s IFRs and guidance documents can be accessed via the following links: