The unprecedented coronavirus (COVID-19) continues to cause chaos not only in hospitals across the country, but also on entire markets and industries. This has meant that many businesses must now face previously unthinkable challenged — for example, their entire business being ordered by the government to halt operations. In order to help serve our clients and Ohioians as a whole, Gugliotta & Gugliotta has put together a team and has created many topic-specific client resources (see Gugliotta & Gugliotta’s COVID-19 Emergency Resource Headquarters). We understand that these are not only challenging times, but also confusing times as well. For that end, we are prepared to help our clients’ legal and business needs resulting from the coronavirus COVID-19 pandemic, no matter which industry our clients may hail from — manufacturing, technology, hospitality, travel, entertainment, dining, health care, fashion, apparel, consumer goods, sports, and more.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
In a rare and much-needed display of bi-partisanship, the Senate passed the CARES ACT unanimously (96–0) on March 25, 2020. The CARES Act represents the third—and by far the largest, with a price tag of $2.5 trillion— phase of the federal government’s coronavirus-related economic relief measures. This CARES Act provides not only businesses but also individuals and hospitals with much-needed, emergency economic relief. The House of Representatives passed the CARES Act by a voice vote on March 27, 2020, and President Trump signed the bill into law later that day.
We will be posting more updates, analysis, and information, as it becomes available, about the CARES Act on our COVID-19 Emergency Resource Headquarters. Please check back frequency for updates. Gugliotta & Gugliotta, LPA is available to assist in interpreting the CARES Act for your business, and we are happy to help you find ways to claim and use available funding for your company.
The CARES Act 101
Below, find some of the most important aspects of the CARES Act:
The U.S. Government has created a $349 billion loan program for small businesses. This includes 501(c)(3) non-profits and physician practices. Importantly, these loans can be forgiven through various federal processes which act to ensure companies retain their employees during these uncertain times.
Individuals, businesses, and hospitals will receive stimulus to directly address the widespread economic havoc caused by the COVID-19 pandemic.
$500 billion in funds is allocated for assisting businesses, state governments, and local municipalities. Of that, no more than $46 billion is set aside to assist airlines, air cargo carriers, and businesses of paramount importance to the United States’ national security. This means that the remaining $454 billion is available to assist eligible companies, state governments, and local municipalities.
The Treasury Secretary now has authority to issue loans or make loan guarantees to state governments, local municipalities, and eligible businesses. Additionally, various regulations imposed in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Economic Stabilization Act of 2008, and more have been relaxed.
$130 billion in funds has been set aside exclusively for the health care industry. This includes for assisting in the supply of drug and medical device shortages. additionally the CARES Act greatly expands the role of Telehealth services in Medicare, even if such services are unrelated to the COVID-19 pandemic.
The Federal government has expanded employment insurance eligibility, providing eligible individuals with an additional $600 per week on top of the individual’s state-determined unemployment amount.
Checks of $1,200 will be sent to Americans making no more than $75,000. In the case of joint returns, checks will be sent to joint filers making $150,000 or less, and heads of households making $112,500 or less. Additionally, payments of $500 per “child” will be paid “as rapidly as possible.”
The CARES Act expands the Defense Production Act, which now allows for a two year window for government to correct shortfalls in resources, without regard to the expense limit of $50 million.
A Quick Summary of the CARES Act
Division A — Keeping American Workers Paid and Employed, Healthcare System Enhancements, and Economic Stabilization
Title I — Keeping American Workers Paid and Employed Act
Paycheck Protection Program.
$349 billion is set aside to cover a period from 2/15/2020—6/30/2020 and greatly expands the SBA loan eligibility requirements. This loan program now allows businesses which have suffered as a result of the COVID-19 pandemic to borrow money for a variety of eligible costs related to maintaining employment and benefits. These include payrolls cost, continuance of health care benefits for employees, employee salaries for employees making under $100,000 per year, mortgage interest and rent obligations, utility payments, and interest on debt which was incurred prior to the covered period.
Moreover, this greatly expands the number of businesses (including non-profits) which are eligible for SBA loans, and it raises the maximum amount for all loans by 2.5 times the average total monthly payroll cost, or up to $10 million. The interest rates on these loans will be set at 0.5%.
Eligible companies include those that employ 500 people or fewer. However, companies with a larger workforce may be eligible as well, depending upon industry-standard workforce sizes. Certain companies in the Accommodation and Food Services Industry (NAICS Code 72) may also be eligible, if they employ no more than 500 employees per physical location. Generally, the number of employees includes all affiliate firms.
The affiliation rules of 13 C.F.R. §121.103 are waived for any Accommodation and Food Services Industry employer with fewer than 500 employees, certain franchise businesses, as well as small businesses which receive SBICA financing. When determining eligibility for these loans, affiliation rules otherwise apply.
Waives the requires of other available credit, personal guaranty, and collateral.
Lenders must determine whether a business was operational on February 15, 2020 and had employees for whom the company paid both payroll taxes and salaries, or paid independent contractors.
Importantly, all or a portion of the loans may be forgivable, and debt service payments can be defers for 1 year.
Entrepreneurial Development
The CARES Act provides funding in order to educate both small businesses and their employees about the federal resources that are available during this tumultuous period of time, the hazards of the COVID-19 illness, as well as best practices for working remotely.
State Trade Expansion Program
Federal grants are now available to support State Trade Extension Program (STEP) in Fiscal Years 2018 and 2019 to remain available for use through the end of Fiscal Year 2021.
Waiver of Matching Funds Requirement under the Women’s Business Center Program
The non-federal match requirement for Women’s Business Centers has been suspended for a 3 month window.
Loan Forgiveness
For many, this is a big aspect
Borrowers under the Paycheck Protection Program are eligible for loan forgiveness equal to the amount spent by the borrow during an 8-week period after the origination date on the following types of expenses only: (1) rent; (2) payroll costs for workers making less than $100,000 annually; (3) utility payments; and, (4) interest on a mortgage. Keep in mind that the amount forgive cannot exceed the principal amount of the loan.
Employers participating in this program are incentivized to retain their employees, since the amount of the loan which can be forgive is proportional to any reduction in employees retained compared to the previous year.
In an effort to encourage employers to re-hire any employees who may have already been laid off because of the pandemic, borrowers of this program who re-hire workers who they previously laid off will not be penalized for having a reduced payrolls at the beginning of the period.
Minority Business Development Agency
The Department of Commerce, via the Minority Business Development Agency, is empowered to issue grants to minority business centers and minority chambers of commerce in order to better provide education, training, and advisement related to the availability and process of obtaining federal resources.
United States Treasury Program Management Authority
The U.S. Treasury, in consultation with the SBA and the Farm Credit Association Chairman, will establish a criteria in order to let other lenders participate in the Paycheck Protection Program. However, participation in the program as a lender cannot threatened the safety and soundness of the lender, as relevant federal banking agencies may determine in consultation.
Emergency Economic Injury Disaster Loans (otherwise called “EIDLs”)
The covered period begins on January 21, 2020 and ends December 31, 2020.
During the covered period, EIDL eligibility has been expanded to include any business with less than 501 employees which operates as a sole proprietorship or an independent contractor, as well as any cooperative, ESOP, and tribal small business concern with fewer than 501 employees. Again, the number of employees is determined in a pool with all affiliates.
EIDLs can be approved exclusively on the bases of: (1) Applicant’s credit score; (2) by use of alternate methods to determine the applicant’s ability to repay the loan.
Applicants can request up to $10,000 advanced within 3 days after the Administrator received the application, subject to certain verification that the applicant is indeed eligible for this program. This advanced amount can be used for any allowable purposes listed in §7(b)(1) of the Small Business Act, and is not subject to repayment (even if the loan request is ultimately denied!).
Waives the following requirements: (1) personal guarantees for loans up to $200,000; (2) credit available elsewhere test; and, (3) that the applicant have been operational for at least a year (however, the applicant must have been operational on January 31, 2020).
Subsidy for Certain Loan Payments
For loans under Small Business Act §7(a), Small Business Investment Act Title V, and for loans made by an intermediary §7(m) loans or grants, the Administrator will pay the principal, interest, and fees owed for loans in regular servicing status for any such loans, whether on deferment or not, which were made before the CARE Act was enacted and the following 6-month period, as well as for any such loans that were made between March 27, 2020 and September 27, 2020.
However, this doesn’t apply to Payroll Protection loans or EIDL loans which have separate subsidy and repayment requirements.
Payments cannot be made more than 30 days from when the first payment is due, and will be applied in a way that the borrower is relieve of any obligation to pay that amount. The Administration will coordinate with relevant banking agencies in an effort to request that lenders not be subject to requirements to increase reserves on the basis of such payments.
The Administrator will waive limits on the maximum loan maturities for loans given deferral and extended maturity during the 1-year period from March 27, 2020–March 27, 2021. The Administrator will extend lender site visit requirement timelines to whatever the pandemic situation requires, to within 60 days of a non-default adverse event, and 90 days of a default.
Bankruptcy
Title 11, §1182(1) is amended in such a way that “debtor” is defined as people engaged in commercial or business activities and their affiliates (however, this does not include anyone who primarily owns single asset real estate) that have aggregate, contingent, liquidated secured and unsecured debts (which exist at the date of petition file or the order for relief) of $7.5 million or less (this doesn’t include debts owed to affiliates and insiders), half or more of which were derived from those activities.
National Emergency Act payments for COVID-19 by the President are excluded from “current monthly income” and “disposable income” when weighing the courts’ power to approve debtor plans rejected by trustees or claim holders.
Debtors who has experienced additional material financial hardship stemming directly from COVID-19
Title II
Subtitle B: Unemployment Insurance
Eligibility
Expands the scope of people who are eligible for unemployment insurance to include those furloughed or unemployed as a direct result of COVID-19, self-employed or gig workers, and those who have already exhausted their preexisting state and federal unemployment benefits.
Only people expressly excluded from eligibility are those that can telework with pay, and those who receive paid sick leave or other paid benefits (even if they would otherwise satisfy all eligibility requirements under this new law)
Administration of Benefits
Benefits will be administered by each state, and are contingent upon the State’s written agreement with the Labor Secretary to provide these specific benefits. States that do enter into this agreement will be reimbursed in whole or in part for the cost of the benefits, plus all administrative expenses.
Types of Benefits
An extra $600 per week, in addition to the amount customarily available for unemployment under state law, will be available. This apply to unemployment payments from from March 27, 2020 through July 31, 2020.
States can agree to provide COVID-19 emergency unemployment compensation to individuals who have either exhausted all of their preexisting available benefits , or to those who are otherwise not eligible for benefits under existing state and federal law. Individuals must be able and available to work and actively seek work, unless they cannot due to COVID0-19 illness, quarantine, or movement restriction.
States can opt to waive the waiting period for benefits, so individuals do not see a gap in their income.
Federal government to temporarily fund short-time compensation under states’ existing plans. States that do not have short-time compensation plans yet may agree to implement such a plan, provided that employers who enter into short-time compensation plans must be required to pay half of the short-time compensation under the plan to the respective state.
Time Period for the Expanded Benefits
These expanded unemployment insurance benefits will be available to covered individuals from January 27, 2020 through December 31, 2020, including any waiting periods under applicable state laws.
Generally, the total benefit cannot expend beyond 39 weeks (this includes unemployment benefits for extended benefits received under existing state or federal laws)
The additional $600 per week benefit will be available through July 30, 2020.
Protections Against Fraud and Overpayment
If a person commits fraud or misrepresentation in an effort to obtain payments to which that person is not eligible, this will result in ineligibility for any other unemployment compensation benefits under the new law, in addition to criminal prosecution.
Overpayments may be accounted for by state agencies.
Treatment of Social Security
Additional unemployment benefits provided will not be considered “income” for the purposes of Medicaid and CHIP
Subtitle B: Rebates and Misc. Individual Provisions
Tax Credits
Eligible Individual taxpayers can benefit from tax credits equal to the sum of $1,200 for single filers or $2,400 for joint filers. Additionally, eligible individual taxpayers will received $500 per qualifying child.
These tax credits will be decreased by 5% of the amount by which the eligible taxpayer’s adjusted gross income exceeds $150,000 for joint-filers and $112,500 for heads of household, and $75,000 for all other types of filers.
For example, this tax credit will be entirely unavailable for joint filers earning $198,000 who have no children.
Tax Treatments of “Coronavirus-Related Distributions”
The CARES Act generally defines a “coronavirus-related distribution” as any distributed from an eligible retirement savings plan made in the year 2020, to an individual who is diagnosed with COVID-19, to an individual whose spouse or dependent is diagnosed with COVID-19, or to an individual who experiences financial hardships as a result of being quarantined, furloughed, laid off, saw a reduction in hours, or any other factor determined by the Secretary of the Treasury during the COVID-19 pandemic.
Qualified employer retirement savings plans can allow individuals who elect to receive a “coronavirus-related distribution”, which will not be subject to traditional 10% tax penalty imposed under the tax laws for early withdrawals.
Unless the aggregate amount of these distributions from all plans maintained by the employer (and any member of any “controlled group” which includes the employer” to such an individual is greater than $100,000
Coronavirus-related distributions made from both eligible employer sponsored retirement savings plans and IRAs are exempt from the 10% early distribution penalty tax
These distributions are, however, subject to regular income tax, although the individual can choose to spread these tax payments out over the course of 3 years.
Repayments of Coronavirus-related distributions
Any person who receives a coronavirus-related distribution can, generally speaking and at any time within 3 years after the distribution was received, make 1 or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement savings plan. These repayments will, to the extent of the amount of the contribution, be treated as having received the coronavirus-related distribution in an eligible rollover distribution, and will be treated as having transfers the amount to the eligible retirement account in a direct trustee to trustee transfer within 60 days of the distribution.
Effects one the Limits on Loans from Qualified Employer Plans
The limitation on loans from any qualified employer plan made to qualified individuals during the 180 day period beginning on March 27, 2020 will be increased from $50,000 to $100,000. Additionally, if the due date of any loan occurs between March 27, 2020 and December 31, 2020, the due date will be delayed for 1 full year.
Required Minimum Distribution Threshold
Temporary waiver of the minimum distribution requirements for the following types of accounts: (1) most defined contribution plans (for example, 401(k) plans), (2) §457(b) deferred compensation plans that are maintained by an eligible employer, or (3) IRAs. This applies for all required minimum distributions that would have otherwise been required in 2020.
Tax Treatment for Charitable Donations
Allow taxpayers to take above-line tax deductions for charitable contributions of up to $300 for the 2020 tax year.
Plus, except for certain exclusions, the percentage and surplus carryover restrictions on charitable and other qualified contributions are ignored
Subtitle C: Business Provisions
Employee Retention Credit for Employer Subject to Closure Due to COVID-19
Eligible employers receive a credit on applicable employment taxes for each calendar quarter, in an amount of 50% of each employee’s qualified wages. The amount of qualified wages taken into account for each eligible employee cannot exceed $10,000 per calendar quarter. Further, this tax credit cannot exceed the applicable employment taxes owed by the employer for that calendar quarter. This credit will not be applicable when the employer is taking advantage of a small business interruption loan.
An “eligible employer” is defined as any employer who (1) was operating during calendar year 2020, and (2) with respect to any calendar quarter for the operation was fully or partially suspended due to government order resulting from COVID-19, or the calendar quarter is within the period beginning on the calendar quarter after December 31, 2019 for which gross receipts for the calendar quarter are less than 50% of the gross receipts for the same
Delaying Payment of Employer Payroll Tax
Allow most employers to defer paying employment tax share from March 27, 2020 through December 31, 2020. Half of this amount will be due on December 31, 2021, and the other half will be due by December 31, 2022.
Modifications to Net Operating Losses (otherwise known as “NOL”)
Generally, there is not a temporary repeal of taxable income limitation. This includes in the case of a taxable year beginning before January 1, 2021, the aggregate of the NOL carryovers to such year, plus the NOL carry backs to such year. This also includes 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 carried to such taxable year, plus the lesser of the aggregate amount of NOLs beginning after December 31, 2017, carried to such taxable year, or 80% of the excess of certain taxable income.
For cases where the NOL arises in a taxable year beginning after December 31, 2017 and before January 1, 2021, the NOL will be a net operating loss carry back to each of the 5 taxable years preceding the taxable year of such loss, and certain rules which apply specifically to “real estate investment trusts” and life insurance companies.
Changes to Limitation on Losses for Non-Corporate Taxpayers
For any taxpayer which is not a corporation:
For a taxable year beginning after December 31, 2017 and before January 1, 2026, subsection (j), which related to a limitation on excess farm losses for certain taxpayers, does not apply, and
For any taxable year beginning after December 31, 2020 and before January 1, 2026, any excess business loss of the taxpayer for the taxable year will not be allowed.
With respect to the treatment of capital gains and losses and how to treat them when calculating “excess business losses:
Deductions for losses from the sales out exchanges of capital assets will not be considered
The amount of gains from sales or exchanges of capital assets taken into account cannot be larger than the smaller 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.
These amendments apply to taxable years beginning after December 31, 2017.
Changes to Corporations’ Credit for Prior Year Minimum Tax Liability
For background, the corporate alternative minimum tax (“AMT”) was repealed as part of the Tax Cuts and Jobs Act. However, corporate AMT credits were made available as refundable credits over several years ending in 2021.
This new law accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 pandemic.
Changes to Limitation on Business Interest
Temporary increase in the amount of interest expense businesses can deduct on their tax returns. Increase the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020. As businesses look to survive the current crisis, this can allow them to increase liquidity while reducing cost of capital, in order for them to continue operations and keep employees employed and on payroll.
Qualified Improvement Property
Allows businesses (especially in hospitality industry) to immediate write off costs associated with improving facilities, rather than having to depreciate those improvements over the 29-year life of a building.
This increases companies’ access to cash flow by allowing them to amend a prior year’s return, and also incentivized them to invest in improvements to help the country recover from the current crisis.
Temporary Exception from Excise Tax for Alcohol Used to Product Hand Sanitizer
For all distilled spirits removed after 12/31/2019 and before 1/1/2021, these spirits will be tax-free for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidelines related to the COVID-19 outbreak.