Tag Archives: CARES Act

IRS Issues Expanded FAQ Guidance on Employee Retention Credit

The Internal Revenue Service (“IRS”) has expanded its FAQ guidance on the Employee Retention Credit (“ERC”), which has been discussed in greater detail in a prior post. Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the ERC provides a refundable tax credit to eligible employers for certain employment taxes equal to 50 percent of up to $10,000 in qualified wages paid per employee, effective March 12, 2020 through December 31, 2020. However, employers that received loans under the Paycheck Protection Program (“PPP”) are not eligible for the ERC.

The ERC FAQ was originally posted in late March, and the IRS has since continued to update it. The FAQ now has nearly 100 questions posed and answered on major-issue areas such as:

A more recent update relates to the eligibility of an employer who repays its PPP loan in accordance with the Small Business Administration (“SBA”) requirement that a business recertify in good-faith that the PPP loan was “necessary to support ongoing business operations” (previously discussed here, here, and here). Released May 8, 2020, the IRS FAQ 79 states that an employer that applied for the PPP loan, received payment, and “repays the loan by May 14, 2020 . . . will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit.” Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer.

The original deadline for PPP loan repayment was May 7, 2020, but was extended to May 14, 2020 with FAQ 43 of the SBA’s PPP FAQs. The SBA then further extended the repayment deadline to Monday, May 18, 2020 in SBA FAQ 47, following its release of guidance which relieved borrowers with loans of less than $2 million from the “necessity” recertification. While the IRS ERC FAQ has not been updated to reflect the new May 18 deadline, we can only assume that those employers who do make repayment by this time would qualify for the ERC all the same. We note, however, that implicit in IRS FAQ 79 is that employers who do not voluntarily make timely repayment may not claim the ERC. In other words, any employer who is ultimately forced by the SBA to repay the loan would not be allowed to take the ERC.

While the PPP loan was at the top of most employers’ COVID-relief wish lists, and for obvious reasons, the ERC may be the next best option for those who erred on the side of repayment. We are happy to answer any questions employers that opted for repayment may have.

Why Individuals Should Care About the CARES Act: Retirement Plans and Charitable Contributions

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides various relief provisions for individuals, including provisions that benefit individuals in relation to their retirement plans and that provide an increase in allowable charitable deductions. Continue reading

PPP Repayment Deadline Extended But Confusion Remains

On May 5, 2020, the Small Business Administration (“SBA”) in consultation with the Department of Treasury (“Treasury”) announced in a new online FAQ that it is giving extra time for companies to repay loans they applied for and received in good faith under the initial guidance provided by the SBA to the Paycheck Protection Program (“PPP”). Originally set for May 7, 2020, the deadline to repay the loan without incurring penalties is now extended to May 14, 2020. The SBA also stated that it plans to issue “additional guidance on how it will review certification prior to May 14, 2020.” Continue reading

Borrowers Receiving Forbearance Will Not Have to Make Lump-Sum Payment When Forbearance Ends

Borrowers of federally backed loans owned by Fannie Mae and Freddie Mac will not have to repay missed payments in a lump sum once their forbearance periods end. Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), made this clear in a statement aimed to correct consumer confusion after reports revealed loan servicers were telling borrowers they would have to repay missed payments in a lump sum. This misinformation was problematic for the tens of millions of unemployed Americans who feared they would continue to face financial hardship due to the COVID-19 emergency. Continue reading

No Deduction for Expenses Paid with Forgiven PPP Loan Funds

One of the major business-tax relief provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is the paycheck protection program (“PPP”) loan forgiveness and the accompanying exclusion of the forgiven amounts from taxable income. Over the past month since the CARES Act’s enactment, the IRS has released guidance clarifying the interaction between PPP loan forgiveness and other provisions of the Act. However, a lingering, big-picture question regarding the deductibility of certain business expenses paid for with later forgiven PPP loan funds remained. Such expenses include mortgage interest, rent obligations, utility payments, and payroll costs—all covered uses of a PPP loan.  Continue reading

IRS Releases Guidance on CARES Changes to Business Interest Expense Limitation and Bonus Depreciation for Qualified Improvement Property

The IRS has released guidance on certain business tax provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  Released on Friday, April 10, Rev. Proc. 2020-22 informs taxpayers how to make certain elections with respect to the newly relaxed business interest expense limitation and provides real estate and farming businesses with the option to make late elections or withdraw pre-CARES elections. One week later, on Friday, April 17, 2020, the IRS announced in Rev. Proc. 2020-25 that  taxpayers may change their depreciation for certain qualified improvement property. It also allows taxpayers to make late, revoke, or withdraw certain depreciation elections. While both revenue procedures are separately significant, their interplay, and the interplay of the associated CARES provisions, may be especially important for certain electing real property and farming businesses.

Continue reading

Application of CARES Act to Tax-Exempt Organizations

The CARES Act provides enhanced financial support for businesses and other eligible entities suffering from the continuing COVID-19 pandemic.  While much of the CARES Act provides relief to for-profit businesses (see our previous post), there are specific provisions for nonprofits and tax-exempt organizations (collectively “TEOs”) which help support the operations and fundraising needs of TEOs during the COVID-19 pandemic and recovery.

Operations support for TEOs

Small Business Loan Program.  The CARES Act created a new business loan program known as the “Paycheck Protection Program.”  In addition to certain other businesses, the Paycheck Protection Program is available to TEOs described in either 501(c)(3) (public charities) or 501(c)(19) (veterans organizations).  TEOs falling within these categories are eligible for loans under the Paycheck Protection Program, subject to other eligibility criteria, while TEOs not falling within these categories are excluded from the benefits of the Paycheck Protection Program.  TEOs interested in the Paycheck Protection Program should see our previous posts on this subject.

Economic Injury Disaster Loans.  The CARES Act specifically includes the COVID-19 pandemic as a disaster for which most TEOs could obtain disaster assistance loans under the SBA’s 7(b)(2) program.  Qualifying small TEOs may receive a $10,000 advance if the TEO’s number of employees or annual receipts qualify.  The advance under this program is not required to be repaid.

Emergency Relief and Taxpayer Protections.  The CARES Act allocates $500 billion for loans, loan guarantees, and other investments to eligible businesses including TEOs with between 500 and 10,000 employees.  The emergency relief loans are subject to a favorable interest rate (no higher than 2% per annum) and no principal or interest is due during the first six months.

Employee Retention Credit and Delay of Payroll Taxes.  TEOs are eligible for the dollar-for-dollar employee retention credit against payroll tax liability.  The amount of the credit is equal to 50% of the first $10,000 in wages per employee.  TEOs who qualify may delay the employer’s share of payroll taxes through the end of 2020.  The delayed payroll taxes are repaid in two installments, with the first due by December 31, 2021 and the second due by December 31, 2022.

Fundraising support for TEOs

In addition, as we previously discussed, the CARES Act allows a partial above the line deduction of up to $300 of cash contributions to charitable organizations and churches, whether the taxpayer itemizes deductions or not, suspends the 50% of adjusted gross income limitation for charitable deductions by individuals, and increases the 10% limitation for corporations to 25% of taxable income and increases the limitation on deductions for contributions of food inventory from 15 % to 25%.

Attorney Susan B. Hecker contributed to this post. 

IRS Clarifies Interplay Between Employment Tax Deferral and Loan Forgiveness

On Friday, April 10, 2020, the IRS launched a new frequently asked questions (FAQ) page on the deferral of employment tax deposits and payments. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows employers to defer the deposit and payment of the employer’s share of social security taxes and self-employed individuals to defer payment of certain self-employment taxes between March 27, 2020 and January 1, 2021. As discussed in our previous blog post, payment of half of these deferred amounts would not become due until December 31, 2021. The second half would be due a year later on December 31, 2022.

Such deferral is, however, prohibited for an employer who receives loan forgiveness under the CARES Paycheck Protection Program (“PPP”). Because the language of the CARES Act makes clear that employment-tax deferral is not disallowed until PPP loan forgiveness actually occurs, it appeared that employers could currently take advantage of such deferral while in the midst of the loan application and forgiveness processes. What remained more uncertain was how the IRS planned to treat previously deferred employment-tax payments once an employer did receive a decision that its lender would forgive the loan.

Question 4 of the FAQ clarifies this interplay between the employment-tax deferral and PPP loan forgiveness as follows:

  • Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of social security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan.
  • Employers who do so will not incur failure-to-deposit and failure-to-pay penalties.
  • Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of social security tax due after that date.
  • The amount of the deposit and payment of the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates” (50% on December 31, 2021 and the remaining amount on December 31, 2022).

The IRS has ensured that information will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January through March 2020). Employers will not be required to make a special election to be able to defer deposits and payments of these employment taxes.

The FAQ also makes clear that the ability to defer deposit and payment of the employer’s share of social security tax is in addition to the relief provided in Notice 2020-22, which provides relief from the failure-to-deposit penalty for not making deposits of employment taxes (including taxes withheld from employees) in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act Employee Retention Tax Credit (ERTC). An employer is therefore entitled to defer deposit and payment of its share of social security tax prior to:

  • determining whether it is entitled to the paid leave credits under the FFCRA or the ERTC;
  • determining the amount of employment tax deposits that it may retain in anticipation of these credits (FFCRA and ERTC), the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits; and
  • receiving a determination of PPP loan forgiveness from its lender.

Keep in mind that an employer who has received a loan under the PPP is not eligible for the ERTC. The FAQ, however, essentially provides that employers can defer deposit and payment of their share of social security tax while in limbo with any of these relief provisions. Additionally, while deferral in anticipation of the ERTC may not be warranted (i.e., because an employer has already received a PPP loan), general deferral would still be permissible until that employer receives official notice of loan forgiveness.

Larger employers who are ineligible for the PPP loans, or employers who choose not to apply for these loans, will be able to utilize both the ERTC (if eligible based on economic decline) and employment-tax deferral. The ERTC and other credits that reduce payroll taxes will reduce the amount eligible for deferral.

IRS Extends Additional Key Tax Deadlines, Provides CARES NOL Guidance

On Thursday, April 9, 2020, the Internal Revenue Service (“IRS”) released two notices and one revenue procedure offering additional filing and payment relief for taxpayers and providing procedural guidance on a main business tax provision of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Extension of Deadlines for Generally All Federal Tax Filings

Notice 2020-23 which “amplifies” Notice 2020-18 and Notice 2020-20 (discussed in a previous blog post) to include any person with a specified Federal tax payment obligation or Federal tax return or other form filing obligation due on or after April 1, 2020 and before July 15, 2020 in the definition of Affected Taxpayer. This includes individuals, trusts, estates, corporations, and other non-corporate tax filers, including Americans who live and work abroad. The deadline is automatically postponed to July 15, 2020.

Among other payment and filing obligations, the following are specifically included in Notice 2020-23:

  • U.S. Estate (and Generation-Skipping Transfer) Tax Returns (Form 706)
  • U.S. Income Tax Returns for Estates and Trusts (Form 1041)
  • Information Regarding Beneficiaries Acquiring Property from a Decedent (Form 8971)
  • U.S. Nonresident Alien Income Tax Returns (Form 1040-NR)
  • U.S. Corporation Income Tax Returns (Form 1120)
  • U.S. Income Tax Returns for S Corporations (Form 1120-S)
  • U.S. Returns of Partnership Income (Form 1065)
  • Exempt Organization Business Income Tax Returns (Form 990-T)
  • Estimated Tax for Individuals (Form 1040-ES)
  • Estimated Income Tax for Estates and Trusts (Form 1041-ES)

The three-month relief provided under Notice 2020-23 to an Affected Taxpayer is automatic, and therefore, there is no requirement to file an Application for Automatic Extension to obtain the benefit of the filing and payment postponement deadline of July 15, 2020. However, the Affected Taxpayer must file the appropriate form for an extension of time by July 15, 2020 to obtain an extension to file until October 15, 2020. Nevertheless, any tax payments will still be due on July 15, 2020.

Accordingly, the period beginning on April 15, 2020 and ending on July 15, 2020 will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file or to pay. Interest, penalties, and additions to tax with respect to such postponed Federal tax filings and payments will begin to accrue on July 16, 2020.

CARES NOL Guidance

Just one day after the issuance of Revenue Procedure 2020-23, allowing eligible partnerships to file amended partnership returns, as discussed previously, the IRS followed up with procedural guidance with regard to making certain NOL elections under the CARES Act. The IRS also extended the deadline for taxpayers seeking “quick refunds” for 2018 net operating losses (NOLs).

Revenue Procedure 2020-24 provides guidance to taxpayers with net operating losses that are carried back under the CARES Act. The specific guidance includes procedures for:

  • waiving the carryback period in the case of an NOL arising in taxable years beginning in 2018, 2019, and 2020;
  • disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period; and
  • waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.

As stated in our previous post, taxpayers must elect out of the CARES Act NOL carryback. An election to waive the carryback for NOLs arising in tax years beginning in 2018 or 2019 must be made no later than the due date, including extensions, for filing the taxpayer’s federal income tax return for the first tax year ending after March 27, 2020. A taxpayer makes the election by attaching to its federal income tax return filed for the first tax year ending after March 27, 2020, a separate statement for each of the tax years 2018 or 2019 for which the taxpayer intends to make the election. The election statement must state that the taxpayer is electing to apply Internal Revenue Code section 172(b)(3) under Rev. Proc. 2020-24 and the tax year for which the statement applies.

Notice 2020-26 grants a six-month extension of time to file Form 1045, Application for Tentative Refund, or Form 1139, Corporation Application for Tentative Refund, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019.  To file for these quick refunds, individuals, trusts, and estates would file Form 1045, and corporations would file Form 1139.

Starting on April 17, 2020 and until further notice, the IRS will accept eligible refund claims on Form 1139 submitted via Fax to 844-249-6236 and eligible refund claims on Form 1045 submitted via fax to 844-249-6237. These fax numbers will not be operational prior to April 17. The IRS is encouraging taxpayers to wait until this procedure is available rather than mailing their Forms 1139 and 1045, as mail processing is being impacted by the COVID-19 emergency. This same procedure may be used by a corporate taxpayer claiming a refund for the acceleration of the recovery of remaining minimum tax credits for its 2018 or 2019 taxable years.

The IRS has released an FAQ to answer common questions associated with this new procedure.

This was post was co-Authored by Alyssa L. Shook and Christina J. Strasser.

The IRS Issues Guidance for Partnerships on Amended Returns


On April 8, the IRS released guidance through Revenue Procedure 2020-23 that will allow partnerships to take advantage of certain tax benefits granted by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act grants certain businesses tax relief in the way of bonus depreciation deductions and an increased business interest deduction limit. This tax relief has been applied retroactively to affect 2018 and 2019 tax years. Partnerships will be allowed to file amended returns for the 2018 and 2019 tax years without first making a request for IRS approval for such changes.

Under the Bipartisan Budget Act of 2017 (the “BBA”), partnerships which have not elected out of the centralized partnership regime are required to file a tax return for the tax year while also furnishing to its partners tax information regarding the partnership, including each partner’s Schedule K-1. Under the BBA, a Schedule K-1 could not be amended without prior IRS approval once the partnership’s tax return due date has passed. This created an inconsistency with the CARES Act, causing a partnership to be unable to take advantage of retroactive tax benefits without first jumping over a number of IRS procedural hurdles.

To alleviate the stress the ongoing COVID-19 pandemic has brought to partnerships, Revenue Procedure 2020-23 allows partnerships that have filed a tax return for tax years beginning in 2018 or 2019 to file amended partnership returns and furnish amended Schedule K-1s to partners before September 30, 2020. The amended returns may take into account tax changes brought about by the CARES Act affecting a partnership’s tax attributes.

Jamie E. Koepsel
jkoepsel@williamsparker.com
(941) 552-2562