Hello again from the Bertz, Hess & Co. team!
It has now been roughly one month since the CARES Act was enacted into law, and to date, much of the focus has been on the availability of the PPP and EIDL loans made available to small businesses. The Act, however, offers several other provisions of financial relief and assistance. Today, we are kicking things off with some recent developments, followed by a bullet point summary of many of the CARES Act provisions. We then take a deeper dive into the liberalization of the net operating loss rules.
Recent Developments Pandemic Unemployment Assistance (PUA) – Self-employed workers, independent contractors, and gig workers can now apply for unemployment benefits by visiting the following website:https://www.uc.pa.gov/unemployment-benefits/file/Pages/Filing-for-PUA.aspx
Legislative update – A second relief bill adding another $484 billion in relief has passed both the House and Senate. President Trump is scheduled to sign the bill today. Stay tuned for future developments and updates.
Other CARES Act Provisions
- Individual recovery payments (AKA – Stimulus Checks)
- Relief from the 10% additional tax on certain retirement plan distributions up to $100,000
- Limit on loans from retirement plans is increased to $100,000
- Required Minimum Distributions from retirement plans are waived for 2020
- Expansion of the definition of qualified medical expenses
- $300 above-the-line charitable contribution deduction
- Increased limits on both individual and corporate charitable contributions
- Employee retention credit for employers
- Delayed payment of employer payroll taxes
- Modification of rules for Net Operating Losses and carrybacks (see below)
- Modification of limit on losses for noncorporate taxpayers
Net Operating Losses
Have you or your business experienced losses in recent years? The CARES Act temporarily removes the taxable income limitation for most taxpayers to allow an NOL carryforward to fully offset income. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the 80% limitation in present law). For tax years beginning after 2021, taxpayers will be able to take: (1) a 100% deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80% of modified taxable income for NOLs arising in tax years after 2017.
The CARES Act also provides that NOLs for most taxpayers arising in a tax year beginning after Dec. 31, 2017 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. Consequently, corporate NOLs arising in 2018, 2019 and 2020 can now be carried back to 2013, 2014, and 2015, respectively. This can be extremely valuable, particularly for corporations, as the maximum corporate tax rate applicable to tax years ending before 2018 was 35%, much higher than the current 21% corporate tax rate.
Action Required: The IRS generally requires the carryback forms to be filed within 12 months of the last day of the taxable year from which the NOL arises. For a calendar year 2018 NOL, the deadline was December 31, 2019, so the IRS recently issued a six-month extension of time to facilitate those filings. The new deadline is now June 30, 2020. Taxpayers in this situation should act now.
Other General Guidance
Guidance on PPP loan forgiveness – A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
- Payroll costs
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent and utility payments
- Interest on other debt obligations incurred before February 15, 2020
NOTE: Not more than 25% of the forgiven amount may be for non-payroll costs
Leasing Standards forGAAP Financial Statements – The FASB voted to propose a one-year deferral in the effective date of the leasing standards for certain nonpublic companies that have not already adopted the standards.
Due Dates – Due dates for most forms, payments, installment payments, elections, appeals, exams and returns previously due between April 1, 2020 and July 15, 2020, including extended forms and first and second quarter estimated payments, are now delayed until July, 15, 2020. No extensions are required.
If you need assistance navigating through the provisions in the CARES Act or other tax and accounting issues, please contact us at 717-393-0767 or email us at firstname.lastname@example.org
The Bertz, Hess & Company Professional Team