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Get Ready for Shuttered Venue Grants – SBA Will Begin Accepting Applications On April 8

Berdon Tax Team

3.23.21 | Client Alert

As efforts to increase mass vaccination are underway, there are hopes of once again attending live events and venues in the not too distant future.  To help shuttered entertainment venues re-open, Congress passed the Shuttered Venue Operators Grant (SVOG), a $16 billion grant program to provide relief to live venue operators, movie theaters, theatrical producers and other qualifying organizations. The SVOG program, which was initially established under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, was subsequently modified under the American Rescue Plan (ARP) Act, 2021. The ARP appropriated additional funds for the program and now allows eligible applicants that receive Paycheck Protection Program (PPP) loan after December 27, 2020, to also receive a SVOG. However, under the new law, grants will be reduced by the amount of PPP loan received after December 27, 2020.

For businesses operating on January 1, 2019, applicants can receive grants of 45% of 2019 gross earned revenue or $10,000,000, whichever is less. For businesses that began operations after January 1, 2019, applicants can qualify for grants equal to 45% of average monthly gross revenue for each full month in operation during 2019 multiplied by six (6), but not to exceed $10,000,000. Although $2 billion is reserved for eligible applicants with up to 50 full-time employees, large employers are still eligible to apply. SVOG proceeds are not taxable to recipients, do not result in the loss of tax deductions, and do not need to be repaid if used for eligible expenses. In the case of partnerships or S corporations that receive such grants, any amounts excluded from income by reason of the SVOG will be treated as tax exempt income and increase the basis of a partner’s partnership interest or shareholder’s basis in S corporation stock.

According to the Small Business Administration (SBA), the SVOG program will open on April 8. Interested applicants should take preliminary steps to register with the federal government in the System for Award Management (SAM.gov), which is required for any entity to receive a SVOG. A preliminary checklist of required documentation is also available on the SBA website at https://www.sba.gov/document/support-shuttered-venue-operators-grant-preliminary-application-checklist so interested applicants should start reviewing the checklist, compute their 2019 gross revenues for purposes of calculating potential grant amounts, and start outlining use of funds.

While more program details are being finalized by the SBA, below is a general summary of the SVOG for applicants that are interested in applying.

Eligible Applicants for SVOG

  • Live venue operators or promoters
  • Theatrical producers
  • Live performing arts organization operators
  • Relevant museum operators
  • Motion picture theater operators
  • Talent representatives

Each business owned by an eligible entity must also meet general eligibility requirements (discussed below).

General Eligibility Requirements

  • Applicant must have been fully operational on February 29, 2020.
  • Applicant must have experienced at least a 25% gross revenue reduction in any 2020 quarter compared to the corresponding quarter in 2019.
  • On the grant date, the applicant must be open and operational or must intend to reopen and resume operations.
  • Applicant must not be listed on a national stock exchange or be majority owned and controlled by an entity listed on a national stock exchange.
  • Applicant must not have received more than 10% of gross revenue from federal funding during 2019 (excluding amounts received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act).
  • The applicant cannot be majority owned or controlled by an entity with the following characteristics (either none or only one of the following three can be true):
    • Owns or operates venues, relevant museums, motion picture theaters, or talent agencies or talent management companies in more than one country.
    • Owns or operates venues, relevant museums, motion picture theaters, or talent agencies or talent management companies in more than ten States.
    • Employs more than 500 employees as of February 29, 2020, determined on a full-time equivalent basis. For purposes of determining the number of full-time equivalent employees, any employee working not fewer than 30 hours per week shall be considered a full-time employee; and any employee working not fewer than 10 hours and fewer than 30 hours per week shall be counted as one-half of a full-time employee.
  • The applicant must certify in good faith that the uncertainty of current economic conditions makes the grant necessary to support the ongoing operations of the eligible person or entity.
  • There are also additional business or facility requirements for certain business types.

Grant Priority

  • Initial Grants
    • First Priority Period (first 14 days that grants are available) is available for applicants that suffered a 90% or greater revenue loss between April 1, 2020 to December 31, 2020 (compared to the period from April 1, 2019 to December 31, 2019).
    • Second Priority Period (next 14 days immediately following initial 14-day period) is available for applicants that suffered a 70% or greater revenue loss between April 1, 2020 through December 31, 2020 (compared to the period from April 1, 2019 to December 31, 2019).
    • Third Priority Period (beginning 28 days after first and second priority awards are made) is available for applicants that suffered a 25% or greater earned revenue loss between one quarter of 2019 and the corresponding quarter of 2020.
  • Supplemental Grants are available after the SBA has processed all first, second, and third priority round grants, and are available for those recipients who received an initial grant and suffered a 70% or greater revenue loss for the most recent calendar quarter as of April 1, 2021 or later compared to the corresponding calendar quarter during 2019.
  • Revenue, for purposes of SVOG, is determined using the accrual method of accounting, excluding any amounts received under The Coronavirus Aid, Relief, and Economic Security (CARES) Act or an amendment by the CARES Act such as PPP loans or other government funding. The SBA may use alternative methods, however, to establish revenue losses for an eligible person or entity that is a seasonal employer.

Allowable Use of Funds

  • Payroll costs
  • Rent payments
  • Utility payments
  • Scheduled mortgage payments (not including prepayment of principal)
  • Scheduled debt payments (not including prepayment of principal on any indebtedness incurred in the ordinary course of business prior to February 15, 2020)
  • Worker protection expenditures
  • Payments to independent contractors (not to exceed $100,000 in annual compensation per contractor)
  • Other ordinary and necessary business expenses, including maintenance costs
  • Administrative costs (including fees and licensing)
  • State and local taxes and fees
  • Operating leases in effect as of February 15, 2020
  • Insurance payments
  • Advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production.

Grantees may not use grants to buy real estate, make payments on loans originated after February 15, 2020, make investments or loans, make contributions or other payments to, or on behalf of, political parties or candidates for election, and any other use prohibited by the SBA.

Documentation and Oversight

Grantees will be required to maintain documentation demonstrating compliance with eligibility and other requirements of the SVOG program, including employment records, for four years following the receipt of the grant and all other records for a three-year period. The SBA is also authorized to increase oversight of the SVOG and review the use of grant proceeds to ensure compliance with requirements as established under the statute.

We will keep you updated as more information is released. In the meantime, please contact your Berdon advisor if you have any questions.

This alert is for general information purposes only and is not intended, and should not be construed, as legal or tax advice.