Monthly Archives: April 2020

CARES Act – SBA Loan Programs and Related Benefits

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law March 27, 2020. Below, we have outlined two of the Small Business Administration (SBA) programs created by the CARES Act, which could have a significant impact on your business.  While we focus on a continued review of the CARES Act with plans to provide additional updates, as warranted, our communications are intended to inform and assure you that we are available to provide any assistance you may need during this time of uncertainty and change.  

Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EEIG) 

• EIDLs are low interest loans up to $2,000,000 with potential principal and interest deferment (at the SBA‚Äôs discretion).
• Term of loan can be up to 30 years.
• Interest rate of 3.75% (for profits) and 2.75% (for eligible non-profits).
• EIDLs are available to small businesses, co-ops, employee owned businesses, independent contractors, sole proprietorships, small agriculture co-ops, tribal businesses and most private non-profits.
• CARES Act provides for an immediate $10,000 grant (EEIG) when applying for and EIDL.¬†Applicants are not required to repay the grant, even if denied the loan.¬†¬†
• It is possible to have both an EIDL and PPP loan but they cannot be used for the same costs.
• EIDLs may be refinanced into a PPP loan (defined below).¬†

Paycheck Protection Program (PPP) 

• Provides a forgivable loan equal to 250% of your average monthly payroll costs, excluding any employee/owner compensation over $100,000.¬† In no case shall the loan amount exceed $10,000,000.
• Average monthly payroll is based on the 1-year period before the date on which the loan is made. If not in business during the prior year period, 2/15/2019 through 6/30/2019, the average is determined using the period 1/1/2020 through 2/29/2020.¬† Seasonal employers use the 12-week period beginning 2/15/2019 or, upon election, use the period 3/1/2019 through 6/30/2019.
• Generally available to small businesses (i.e., fewer than 500 employees) including individuals who operate a sole proprietorship or as an independent contractor.
• 501(c)(3) ‚Äì public charities and 501(c)(19) ‚Äì veterans‚Äô organizations may participate.
• Any business concern that employs more than 500 total employees, but not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, can have the affiliation rules waived.¬†
• Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.¬†
• Loan forgiveness is determined based on the ‚Äúuse‚Äù of the loan proceeds during the 8-week period beginning on the loan date (the ‚Äúcovered period‚Äù).
• Qualifying costs incurred during the covered period include:
• Payroll
• Rent (on any lease agreement entered into before 2/15/2020)
• Interest on a Mortgage obligation (incurred before 2/15/2020)
• Utilities-electric, gas, water, transportation, telephone or internet (which began before 2/15/2020)¬†
• Loan forgiveness will be reduced proportionately to a workforce reduction, comparing the covered period monthly average to, at the election of the employer, the monthly average for the period 2/15/2019 to 6/30/2019 or the period 1/1/2020 to 2/29/2020.
• Loan forgiveness will be reduced to the extent of any salary reduction to an employee that is in excess of 25% of the salary and wages for the most recent full quarter before the covered period.
• Headcount and salary reductions remedied no later than June 30, 2020, are exempt from impacting the loan forgiveness amount.
• Any amount not forgiven may be financed for a maximum of 10 years and an interest rate not to exceed 4%.
• Payment is deferred for no less than 6 months and no more than 1 year.
• Any EEIG received related to a refinanced EIDL will reduce the any PPP loan forgiveness.
• Borrower Requirements – an eligible recipient applying for a covered loan shall make a good faith certification:
• that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
• acknowledging that funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments;
• that the eligible recipient does not have an application pending for a loan under this Section 7(a) of the Small Business Act for the same purpose and duplicative of amounts applied for or received under a covered loan; and
• during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under Section 7(a) of the Small Business Act for the same purpose and duplicative of amounts applied for or received under a covered loan.¬†

If you have questions related to how these SBA programs may help your business during these challenging times or you would like assistance quantifying what these programs could mean for your business, please do not hesitate to contact your service team.

CARES Act – Tax Related Benefits

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. Below we have outlined many of the significant income tax provisions we expect will impact you. While we focus on a continued review of the CARES Act with plans to provide additional updates, as warranted, our communications are intended to inform. We assure you we are available to provide any assistance you may need during this time of uncertainty and change. 

Note that several provisions of the CARES Act provide technical corrections to the Tax Cuts and Jobs Act (TCJA) that was signed into law on December 22, 2017. We have noted such corrections in the summary below. 

General Income Tax Provisions 

Net Operating Losses (NOLs) 

TCJA Technical Correction:

• Fiscal year taxpayers may now carryback NOLs generated in their 2017 tax year.¬†
• Fiscal year taxpayers generally have 120 days from CARES enactment (3/27/2020) to file a carryback claim.

NOLs generated in tax years 2018, 2019 and 2020 may be carried back 5 years. 

Corporate Prior Year Minimum Tax Credit Refunds 

• Accelerates full refund to 2019 (previously for tax year 2021).
• Corporations may elect under new Section 53(e)(5) to take total credit in 2018.¬†Refund application must be filed before 12/31/2020 in the form and manner prescribed by Treasury.¬†

Interest Expense Limitation 

• For 2019 and 2020, the business interest expense limitation is adjusted to 50% of Adjusted Taxable Income (from 30% previously).
• Special rules for partnerships ‚Äì
• 50% limit does not apply to 2019; 30% applies.
• Any 2019 excess business interest expense (EBIE) is bifurcated ‚Äì 50% deductible in 2020 with no regard to 163(j); 50% follows existing rules.
• Taxpayers can make irrevocable election out of the 50% limitation.
• Partners can elect not to apply the special rule of EBIE received from partnerships in 2019.¬†

Qualified Improvement Property (QIP) 

TCJA Technical Correction, retroactive to the date of enactment:

• QIP is now 15-year property, eligible for bonus depreciation.
• QIP is assigned a 20-year ADS class life, important if making a real property trade or business election.
• Adjustment for assets place in service in prior year may be accomplished through an amended return or automatic method change.¬†Additional guidance from Treasury is expected.¬†

Employer Education Payments 

• The CARES Act amends IRC Section 127 to allow employer payments made before January 1, 2021 for student loans to be treated as educational assistance. An employer may provide educational assistance to employees on a tax-free basis up to a maximum exclusion amount of $5,250 annually.¬†

Access to Retirement 

• Penalty free access to retirement up to $100,000.
• Increased limit on loans retirement plans ‚Äì now up to $100,000 and up to 100% of vested balance.
• Early distributions from qualified employer plans will not impact the plan‚Äôs tax favored status.
• Required Minimum Distributions (RMDs) are suspended for 2020.¬†

Excess Business Losses 

• The $500,000 excess business loss limitation under Section 461(l) is deferred until 2021.
• TCJA Correction ‚Äì wage income will not be includible as business income for purposes of the excess business loss limitation.¬†
• Certain impacted taxpayers may need to file amended 2018 and/or 2019 tax returns.¬†

Charitable Contributions 

• Generally, corporations may make cash and wholesome food donations up to 25% of taxable income.
• Generally, individuals itemizing can deduct cash donation to public charities (excluding private foundations, supporting organizations, or donor advised funds) up to 100% of AGI.
• All individuals who do not itemize deductions are now afforded a $300 ‚Äúabove the line‚Äù deduction for cash donations to public charities (excluding private foundations, supporting organizations, or donor advised funds).¬†

Recovery Rebates 

• Eligible individuals are entitled to a refundable credit in the amount of $1,200 for a single individual or $2,400 for married individuals filing jointly to be paid in the 2020 tax year. Qualifying children will generate an additional $500 each.
• The amount of the credit will be reduced by 5 percent of of the taxpayer‚Äôs adjusted gross income (AGI) which exceeds $150,000 for married individuals filing jointly, $112,500 for an individual filing as a head of household, and $75,000 for single individual or a married individual filing separately. The credit phases out completely when a taxpayer‚Äôs AGI exceeds $99,000 (for single filers), $146,500 (for heads of households), or $198,000 (for joint returns).
• No action is required to claim the rebate with the IRS using the 2018 or 2019 tax return data to issue such rebates.¬†

Employee Retention Credit 

• Credit for 50% of qualified wages (on up to $10,000 of qualified wages per employee) paid by qualified employer.
• Credit is allowable against payroll tax and is refundable (as on overpayment) if in excess of quarterly taxes due.
• Tax Exempt employers can qualify.
• Eligible Employer ‚Äì
• Carried on business in 2020¬†and¬†with respect to any calendar quarter during 2020,
• Such business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority due to COVID-19¬†or,
• Such business suffered a significant decline in business during a calendar quarter in 2020 defined as
• Gross receipts are less than 50% of gross receipts in the same prior year quarter.
• Once eligible, a taxpayer remains eligible until the first calendar quarter gross receipts are greater than 80% of gross receipts in the same calendar quarter for the prior year.
• Credit period covers wages earned/paid March 13, 2020 through December 31, 2020.
• Eligible Wages ‚Äì
• If the full-time employee average in 2019 was 100 or less, all wages paid (up to the $10K cap).
• If the full-time employee average in 2019 was greater than 100 ‚Äì all wages paid (up to the $10K cap) when the employee is not working.
• Single employer aggregation rules apply ‚Äì (Sections 52 and 414).
• Wages do include amounts paid to a group health plan.
• Wages do not include amount paid by an employer that qualify for the credit under the Families First Coronavirus Response Act (i.e. paid sick leave and paid family medical leave).¬†

The credit is not available for taxpayers participating in the Paycheck Protection Program. 

Payroll Tax Deferral 

• Includes employer payroll taxes and 50% of self-employment taxes.
• Deferral period begins on date of enactment, March 27, 2020, and continues through December 31, 2020.
• Deferred payments are due in two equal installments on December 31, 2021 December 31, 2022.¬†

Deferral is not available for taxpayers with debt forgiven under the Paycheck Protection Program. 

RBG will continue to monitor guidance which may impact your business. We will continue to keep you apprised of new developments and available resources. Please contact your RBG advisor at 901.682.2431 for any needs. 

State Reactions to Changes in Federal Tax Return Due Dates

Last Friday, the IRS issued Notice 2020-18, officially postponing the due date for filing federal income tax returns and making federal income tax return and Q1 payments until July 15, 2020. See our discussion of the federal changes to due dates here, https://rbgcpa.com/news/federal-tax-filing-deadline-extended. 

Since then, RBG has closely monitored the states' reaction. While many states have adopted the July 15th federal deadlines for both filing and payments, some states have retained the April 15th deadline or provided a shorter extension period. Below is a brief summary of a few key states for our clients.   

Tennessee extended the filing and payment deadline until July 15, 2020. This extension is automatic and applies to both franchise and excise tax returns as well as Hall income tax returns. The extension includes quarterly estimated payments originally due on April 15th. 

Alabama postponed the filing and payment deadline until July 15, 2020. The new due date applies to individual, trust, corporate, excise, and business privilege tax returns. The postponement includes 2020 estimated income tax payments originally due on April 15th. 

Arkansas extended the filing and payment deadline until July 15, 2020 for individual, trust, partnership and S corporation tax returns. C corporations must file and pay tax by April 15th. In addition, 2020 estimated income tax payments are still due April 15th for all filers. This information is subject to change but is the state’s published guidance as of March 27, 2020. 

California extended the filing and payment deadline until July 15, 2020. This extension is automatic and applies to all tax return types. The extension includes quarterly estimated payments originally due on April 15, 2020 and June 15, 2020. 

Maryland has extended the filing and payment deadline until July 15, 2020. This extension is automatic and applies to business, trust and individual tax returns. The extension includes quarterly estimated payments originally due on April 15, 2020. 

Massachusetts extended the filing and payment deadline until July 15, 2020 for individual income tax returns only. This extension is automatic. This information is subject to change but is the state’s published guidance as of March 27, 2020. 

Mississippi extended the filing and payment deadline until May 15, 2020. This extension is automatic and applies to both individual and corporate income tax. The extension includes quarterly estimated payments originally due on April 15th. 

New York publicly announced an extension of the filing and payment deadline until July 15, 2020. The extension is intended to be automatic and applicable to all return types. However, official guidance has not been released by the New York Department of Revenue. Stay tuned! 

North Carolina has extended the filing and payment deadline until July 15, 2020. This extension is automatic and applies to individual, corporate and franchise tax returns. Penalties will be waived through July 15, 2020. 

States continue to provide additional guidance daily. RBG is monitoring these decisions and will keep you updated as additional information becomes available. If you have questions regarding your state filings, or simply want to discuss your current situation, please do not hesitate to contact your service team.