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Federal Register / Vol. 86, No. 9 / Thursday, January 14, 2021 / Rules and Regulations
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experienced a reduction in annual receipts of 25 percent or greater in 2020
compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. This provision will allow a borrower to provide annual tax return forms to substantiate its revenue reduction. The Administrator, in consultation with the Secretary of the Treasury Secretary, has determined that this is necessary to improve administrability of Second Draw PPP Loans by providing borrowers an additional verifiable method for substantiating their revenue reduction.
This method will be particularly important for small borrowers that may not have quarterly revenue information readily available. Moreover, this approach is appropriate because, if annual filings show a 25 percent revenue reduction, then at least one quarter in 2020 would have had at least a 25 percent revenue reduction. A
borrower that did not experience a 25
percent annual decline in revenues, or that was not in operation in all four quarters of 2019, may still meet the revenue reduction requirement under one of the quarterly measurements described above.
The Economic Aid Act does not include a general definition of gross receipts for purposes of determining a borrowers revenue reduction.8
Subsection c2 of the IFR defines gross receipts consistent with the definition of receipts in 13 CFR 121.104
of SBAs size regulations because this definition appropriately captures the type of income that is typically included in a small businesss gross receipts.9
8 For an eligible nonprofit organization, a veterans organization, an eligible nonprofit news organization, eligible 501c organization, or eligible destination marketing organization, gross receipts has the meaning in section 6033 of the Internal Revenue Code of 1986. See paragraph 7a37Iii of the Small Business Act. Subsection c2 of the IFR clarifies that this definition, which generally relates to eligible nonprofit organizations, applies only to eligible nonprofit news organizations rather than to all eligible news organizations.
9 Subsection c2 of the IFR generally defines gross receipts to include all revenue in whatever form received or accrued in accordance with the entitys accounting method from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
Generally, receipts are considered total income or in the case of a sole proprietorship, independent contractor, or self-employed individual gross income plus cost of goods sold, and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: Taxes collected for and remitted to a taxing authority if included in gross or total income such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate
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Moreover, this definition will enhance the administrability of Second Draw PPP Loans because it is a definition already used by the Administration and many small businesses.
The IFR specifies that any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrowers gross receipts. Excluding the forgiveness amount from a borrowers gross receipts is consistent with section 7Ai of the Small Business Act, which expressly excludes PPP forgiveness amounts from being taxed as income.10 This clarification ensures the effectiveness of the second draw loan program by ensuring that a borrower is not disqualified from receiving a Second Draw PPP Loan because it received forgiveness on a First Draw PPP Loan.
This furthers the purpose of the second draw loan provisions, which is to deliver additional aid to small businesses that previously received a First Draw PPP Loan.
3. Business Concerns With More Than One Physical Location Under the CARES Act, any single business entity that is assigned a NAICS
code beginning with 72 including hotels and restaurants and employs not more than 500 employees per physical location is eligible to receive a First Draw PPP Loan.11 In addition, as discussed below, under the Consolidated First Draw PPP IFR, SBAs affiliation rules 13 CFR 121.301 do not apply to any business entity that is assigned a NAICS code beginning with 72 and that employs not more than a total of 500 employees.12 As a result, if each hotel or restaurant location owned by a parent business is a separate legal business entity and employs not more than 500 employees, each hotel or restaurant location is permitted to apply for a separate PPP loan provided it uses its unique EIN.
Section 317 of the Economic Aid Act modified this provision for Second agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customers request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. Subsection c2 also adapts the methodology for calculating affiliate receipts from 13 CFR 121.104.
10 Section 1106 of the CARES Act 15 U.S.C.
9005 was redesignated as section 7A, transferred to the Small Business Act 15 U.S.C. 631 et seq., and inserted so as to appear after section 7 of the Small Business Act 15 U.S.C. 636 in section 304b of the Economic Aid Act.
11 Paragraph 7a36DiiiI of the Small Business Act.
12 Paragraph 7a36Div of the Small Business Act.

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Draw PPP Loans by reducing the limit on employees per physical location to 300. Accordingly, a single business entity that is assigned a NAICS code beginning with 72 is eligible to receive a Second Draw PPP Loan if it employs no more than 300 employees per physical location and meets the revenue reduction requirements and otherwise satisfies the eligibility criteria described in this IFR.13 Under section 317 of the Economic Aid Act, the same standard applies to certain news organizations.14
Subsections c3 and c4 of the IFR
implement these statutory provisions.
Borrowers may consult PPP Frequently Asked Question FAQ 24 15 for guidance on these standards for business concerns with more than one physical location, except that, for Second Draw PPP Loans, the number of employees per physical location is limited to 300 rather than 500.
B. Affiliation Rules The same affiliation rules that apply to First Draw PPP Loans apply to Second Draw PPP Loans, except as provided in this IFR. As with First Draw PPP Loans, in most cases, a borrower is considered together with its affiliates to determine eligibility for the PPP.16
However, the CARES Act waived the affiliation rules for certain categories of borrowers.17 Paragraph 7a37E of the Small Business Act, as amended by the Economic Aid Act, applies the same 13 Paragraph
7a37D of the Small Business
Act.
14 Paragraph 7a36DiiiII of the Small Business Act.
15 See PPP FAQ 24 posted April 13, 2020, available at https www.sba.gov/sites/default/files/
2020-12/Final%20PPP%20FAQs%20%28December %209%202020%29-508.pdf.
16 Paragraph 7a36Div of the Small Business Act 15 U.S.C. 636a36Div, as added by the CARES Act and amended by the Economic Aid Act, waived the affiliation rules contained in 121.103
for 1 any business concern with not more than 500
employees that, as of the date on which the loan is disbursed, is assigned a NAICS code beginning with 72; 2 any business concern operating as a franchise that is assigned a franchise identifier code by SBA; 3 any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 15 U.S.C. 681; and 4a any business concern including any station which broadcasts pursuant to a license granted by the Federal Communications Commission under title III of the Communications Act of 1934 47 U.S.C. 301 et seq.
without regard for whether such a station is a concern as defined in 13 CFR 121.105, or any successor thereto that employs not more than 500
employees, or the size standard established by the Administrator for the NAICS code applicable to the business concern, per physical location of such business concern and is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151; or b any nonprofit organization that is assigned a NAICS
code beginning with 5151.
17 Paragraph 7a36Div of the Small Business Act.

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