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BHBM Tax Law Alert | CARES Act: Small Business Loans and Tax Relief

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FEDERAL TAX LAW UPDATE

CARES Act: Small Business Loans and Tax Relief

In response to the economic turmoil created by the COVID-19 pandemic, on March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act into law. The $2 trillion relief package, dubbed the “CARES Act,” covers significant ground by ordering direct payments to middle and lower income households, raising the maximum unemployment insurance benefit by $600 and expanding the ranks of those who can apply for unemployment benefits. It also provides $150 billion in funding for the healthcare system and $150 billion in funding for state and local governments, making $350 billion available in the form of loans for small businesses, and granting significant tax relief for businesses. This alert focuses on the provisions of the CARES Act regarding small business loans and tax relief for businesses.

(1) Business Loans

Guarantee and Deferral

Eligibility

The following types of businesses/entities that were in business as of February 15, 2020 are eligible to receive PPP Loans:

Affiliation Rules

Please note that the SBA affiliation rules must be considered to determine whether a business concern has five hundred (500) or fewer employees. Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses.

For purposes of the Act, the affiliation rules are waived in the following situations:

Maximum Loan Amount

For eligible borrowers that have been in business as of February 15, 2019 – June 30, 2019, the maximum amount of a PPP Loan that the borrower can receive is the lesser of:

For eligible borrowers that were not in business as of February 15, 2019 – June 30, 2019, the maximum amount of a PPP Loan that the borrower can receive is the lesser of:

Please note that in the event an eligible borrower is a seasonal employer (as determined by the SBA), the average eligible total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible borrower, March 1, 2019, and ending June 30, 2019.

Please note that borrowers may apply for PPP Loans and other SBA financial assistance, including EIDLs, 7(a) loans, 504 loans, and microloans (collectively, “Alternative SBA Loans“), and also receive investment capital from SBICs. However, borrowers may not use the Alternative SBA Loans for the same purpose as the PPP Loan. For instance, if a borrower uses the PPP Loan proceeds to cover payroll for the 8-week covered period, they may not use an Alternative SBA Loan for payroll for those same costs in that period.

Eligible Payroll Costs

For purposes of the Act, the following costs shall be used to calculate payroll:

Items Excluded from Payroll Calculation

For purposes of the Act, the following costs shall be excluded in the calculation of payroll:

Allowable Uses of PPP Loan Proceeds

The Act provides the following approved uses for PPP loan proceeds:

Loan Forgiveness

The amount of the PPP Loan that will be forgiven is the sum of the following payments made by the eligible business during the 8-week period beginning on the date the loan was made:

Employers that are forgiven indebtedness from a PPP Loan will not be eligible for the payroll tax deferral (discussed below) provided under the Act.

PPP Loan Proceeds Not Forgiven

(2) Tax Relief for Businesses

Modification of Net Operating Losses (“NOLs”)

Modification of Business Interest Limitation

Qualified Improvement Property

Payroll Tax Deferral

Employee Retention Credit

To view all of our COVID-19 related Tax Law Alerts, click here.


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