Depending on their business, companies should keep apprised of the potential for government assistance. The CARES Act, signed into law on March 27, 2020, is a $2 trillion stimulus package intended to counter some of the economic devastation caused by the Coronavirus. The law makes certain government loans available for the cost of rent and employees, which are forgiven when funds are expended on the required purpose. The timing and scope as to when and how much may ultimately be available remains unclear.
- Creates a $350 billion loan program to businesses that employ no more than 500 employees, allowing companies to borrow money to cover certain costs, such as payroll, healthcare benefits, rent, and utilities, among others.
- Provides loan forgiveness programs through incentivizing business to retain and rehire employees.
- Expands eligibility for Small Business Administration (SBA) loans, raising the maximum amount for these loans to 2.5 times the average monthly payroll costs, or up to $10 million, with interest rates not to exceed 4%, and waiving certain credit and personal guaranty requirements.
- Adds relief for businesses in the accommodation and food services industries, certain franchise businesses, and small businesses that receive financing through the Small Business Investment Company Act.
- Funds small-business education programs regarding COVID-19 and available federal resources.
- Enables the U.S. Department of Commerce to give grants to minority business centers and chambers of commerce to educate, train, and provide access to federal resources.
- Extends Emergency Economic Injury Disaster Loans (EIDL) eligibility to individuals operating sole proprietorships, independent contractors, etc., with no more than 500 employees.
- Empowers the SBA to approve EIDLs solely on the basis of an applicant’s credit score or by use of alternative methods to gauge the applicant’s ability to repay.
- Applicants may request an advance of up to $10,000 within three days after the administrator receives the application, which may be used for any allowable purposes under Section 7(b)(2) of the Small Business Act and is not subject to repayment, even if the loan request is ultimately denied.
- Stipulates that, for loans under Section 7(a) of the Small Business Act, Title V of the Small Business Investment Act, and for loans made by an intermediary using Section 7(m) loans or grants, the administrator shall pay the principal, interest, and fees owed for loans in regular servicing status for any such loans, whether on deferment or not, that were made before the enactment of the act for the following six-month period, and for any such loans that were made between the date of enactment of the act and six months from such date.
- Appropriates $17 billion to waive limits on the maximum loan maturities for loans given deferral.
- Extends maturity during the year following enactment.
- Stretches lender site visit requirement timelines as necessary due to COVID-19 to (i) 60 days of a non-default adverse event and (ii) 90 days of a default.
- Provides tax relief to certain eligible employers
- Eligible employers receive a credit against applicable employment taxes for each calendar quarter in an amount equal to 50% of the qualified wages with respect to each employee. The amount of qualified wages taken into account for each eligible employer, however, will not exceed $10,000 per calendar quarter and the credit will not exceed the applicable employment taxes owed for such calendar quarter.
- Most employers may defer payment of Social Security tax.
- Modifies net operating losses (NOL), providing a temporary repeal of taxable income limitation, including: (i) in the case of a taxable year beginning before January 1, 2021, the aggregate of the NOL carryovers to such year, plus the NOL carrybacks to such year, and (ii) in the case of a taxable year beginning after December 31, 2020, the sum of the aggregate amount of NOLs arising in taxable years beginning before January 1, 2018, and the lesser of the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, or 80% of the excess of taxable income.1
- Modifies limitation of losses for taxpayers other than corporations.
- Modifies capital gains and losses, providing that deductions for losses from sales or exchanges of capital assets will not be taken into account and providing that the amount of gains from sales or exchanges of capital assets taken into account will not exceed the lesser of (1) the capital gain net income determined by taking into account only gains and losses attributable to a trade or business, or (2) the capital gain net income.
- Accelerates the ability of companies to recover alternative minimum tax (AMT) credits that were repealed under the Tax Cuts and Jobs Act, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
- Increases the amount of interest expense businesses are allowed to deduct on their tax returns by increasing the 30% limitation to 50% of taxable income for 2019 and 2020.
- Enables businesses, to immediately write off costs associated with improving facilities instead of depreciating those improvements over the 39-year life of the building.
- Provides a temporary exception from excise tax for businesses that distill spirits for use in hand sanitizer.
Awareness of the Resources Available
It is important for businesses to be aware of the resources available, including those in a second CARES Act, to help mitigate the effect of the Coronavirus on their businesses.
Be sure to speak with your legal and tax professionals regarding the specifics on any CARES question and any potential legal tax issues facing your business. Flexicrew provides this information as a public service, but it should not be construed as either legal or tax advice.