Tag Archives: Coronavirus Aid Relief and Economic Security Act

For the Self-Employed the CARES Act Could Provide Too Much Liquidity: Simultaneous PPP and Unemployment Payments

Self-employed individuals may find themselves in a difficult situation because they have simultaneously received Paycheck Protection Program (“PPP”) loan and Unemployment benefits under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act was enacted this past March with a primary goal of combating COVID-19-related shutdowns and layoffs. It made state unemployment insurance (plus an additional $600 per week through July 31, 2020) (“Unemployment”) available to self-employed individuals, among others, and offers that same group a forgivable PPP loan for their suffering businesses. Faced with the menu of liquidity and uncertainty within the CARES Act, many self-employed individuals immediately applied for both Unemployment and a PPP loan. The question they now face is whether receiving both benefits at the same time is permissible.

The Tension Between The PPP and Unemployment Benefits

While there is no explicit authority in the CARES Act prohibiting the simultaneous receipt of both PPP loan and Unemployment monies, keeping both is risky at best and could potentially be viewed as fraudulent at worst. This is because the receipt of one goes against the purpose and spirit of the other. Looking first at the PPP, its very goal is to allow businesses to keep their employee or employees on the payroll. In other words, the applicant needs the money to keep its business going and pay salaries and wages. It logically follows that a self-employed individual who receives a PPP loan is therefore considered fully employed, at least until the funds run dry.

On the other hand, an individual is only eligible for Unemployment benefits with respect to the CARES Act, where they become totally or partially unemployed (or furloughed) due to COVID-related reasons. These monies serve only as a bridge across gaps in employment. A recipient is therefore very arguably ineligible for Unemployment benefits where compensated work is made possible by PPP funds. This is to be distinguished from a situation where a self-employed individual received necessary Unemployment while waiting for PPP loan approval and disbursement or following the depletion of the PPP loan if it came first.  

Potential Consequences

Continuing to take Unemployment while benefiting from a PPP loan could potentially be, or appear to be, a fraudulent situation. The Department of Labor (“DOL”) has made clear that all states, including Florida, are to exercise due diligence to detect fraud and assess the accuracy of payments to eligible claimants. The Small Business Administration (“SBA”) is also prosecuting PPP loan fraud under federal civil and criminal statutes and has been vocal about the consequences of failing to return unnecessary PPP funds. Most individuals who have simultaneously received or are currently receiving monies from both programs are well-intentioned and unknowing recipients, but this may not save them from an accusation of wrongdoing and/or having to go through state or federal administrative proceedings.

Finally, even assuming one could carefully segregate their PPP funds for their business from their Unemployment, using only the Unemployment monies to pay themselves a salary and the PPP to pay all other eligible business expenses, the risk of losing eligibility for full or substantial loan forgiveness remains. At least 60 percent (previously 75 percent) of the PPP loan must be spent on payroll expenses (i.e., wages) to qualify for full loan forgiveness. When comparing the size of most PPP loans to Unemployment payment amounts, the importance of avoiding this risk becomes obvious. It also remains unclear whether such segregation of simultaneous benefits is possible.

Based on the foregoing, self-employed individuals who have received both PPP and Unemployment benefits to review their payouts for any overlap of funds and check with their legal/financial advisors on the best course of action in the event of any overlap.

IRS Releases Guidance for Retirement Plan Related Relief under the CARES Act

As discussed in our prior blog post, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides special relief provisions for individuals in relation to their retirement plans. The provisions of the CARES Act, however, created uncertainties for both plan administrators and individuals when dealing with the administration of their respective retirement plans. On June 22 and June 23, the IRS issued Notice 2020-50 and Notice 2020-51, respectively, which provide guidance related to treatment of coronavirus-related distributions and the 2020 waiver of required minimum distributions (“RMDs”). On July 17, the IRS issued News Release 2020-162 to remind individuals about the CARES Act relief related to RMDs.

Notice 2020-50: IRS Guidance on Coronavirus-Related Distributions

Notice 2020-50 expands the definition of a qualified individual (i.e. the individuals who are able to take advantage of the retirement plan related relief provided under the CARES Act) and provides helpful guidance for reporting coronavirus-related distributions from retirement plans. As a reminder, a coronavirus-related distribution is a distribution from an eligible retirement plan to a Qualified Individual (defined below) between January 1, 2020 and December 30, 2020.

Definition of a Qualified Individual

As provided in an IRS News Release, the definition of qualified individual, as expanded under Notice 2020-50, is anyone who

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • being unable to work due to lack of childcare due to COVID-19;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • having a job offer rescinded or start date for a job delayed due to COVID-19.

This expanded definition will allow more individuals to reap the benefits associated with receiving coronavirus-related distributions.

Reporting a Coronavirus-Related Distributions

For the Qualified Individual to receive favorable tax treatment, the Qualified Individual must report the distribution on his or her for Form 1040 (Individual Income Tax Return) (if applicable) and on Form 8915-E (Qualified 2020 Disaster Retirement Plan Distributions and Repayments) for 2020. Form 8915-E is expected to be available before the end of 2020. The favorable tax treatment includes the waiver of the 10-percent additional tax, the allowance of the pro-rata inclusion in income, and recontribution benefits. For more information on these benefits, please see our prior blog post.

If the Qualified Individual recontributes his or her coronavirus-related distributions to an eligible retirement plan, the method to report such recontribution depends on whether the Qualified Individual elected to include the coronavirus-related distribution ratably over a 3-year period. If the Qualified Individual reports the entire coronavirus-related distribution in the year of distribution and recontributes such distribution in a later year, the Qualified Individual is required to file a revised Form 8915-E (and amended Form 1040, if applicable).

If the Qualified Individual instead elects the ratable inclusion, then the amount of the recontribution will decrease the amount of the coronavirus-related distribution included in income for that year. The recontribution will be reported on Form 8915-E. Further, if a Qualified Individual recontributes an amount that is greater than the amount included in gross income for the taxable year, the excess recontribution amount may be carried forward, or carried back, to reduce the amount of the coronavirus-related distribution included in income in the future year, or prior year, respectively.  If the excess recontribution amount is carried back, a revised Form 8915-E (and amended Form 1040, if applicable) must be filed.

Notice 2020-50 also provides detailed guidance for plan administrators for retirement plan loans.

Notice 2020-51: IRS Guidance on Waiver of Required Minimum Distributions

As discussed in our prior blog post, the CARES Act provides a waiver of RMDs from certain retirement accounts. This new waiver rule may certainly be beneficial for individuals who wish for their retirement plan funds to grow tax-deferred in 2020; however, it also created uncertainty, especially in relation to options for rollovers.

Fortunately, Notice 2020-51 provides that distributions from a retirement plan that would have been an RMD but for the CARES Act are eligible for rollover into an eligible retirement plan, as long as other general rollover requirements are met. Further, an IRA owner or beneficiary who already received an amount that would have been an RMD but for the CARES Act may repay such distribution to the distributing IRA. Such repayment will be treated as a rollover for income tax purposes, which means the owner or beneficiary will not have to pay income tax on the distribution.

Generally, an individual must rollover a payment within 60 days to avoid tax and penalties and is only allowed one rollover within a 12-moth period. In Notice 2020-23, the IRS previously extended the rollover deadline to July 15 for RMDs distributed after January 2020. To provide further relief for individuals who already received distributions in 2020, Notice 2020-51 provides a special rule that the deadline to rollover a payment described above is extended to August 31, 2020. Thus, pursuant to Notice 2020-51, individuals who received distributions in January are now also eligible for rollover relief.

Further, these rollovers will not count towards the one rollover per 12-months limitation and are not restricted by the general rule against rollovers for non-spousal beneficiaries.

Notice 2020-51 also provides information related to the SECURE Act, guidance about plan amendments, and advice regarding other various issues addressed by FAQs.

Attorney Colton F. Castro contributed to this blog post.

PPP Flexibility Act Expected to Be Signed into Law

On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was approved by the House late last week. President Trump is expected to sign the Act into law. As a part of the larger Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program (“PPP”) provides loans to small-to-mid-sized businesses suffering from the COVID-19 pandemic. As enacted, the PPP loans are to be forgivable when used for specific business and payroll expenses during a specified timeframe. Any forgiven loan amounts are excluded from businesses’ taxable income. However, due to insufficient funding and lengthier pandemic-related shutdowns, the PPP relief became inaccessible for many businesses.

The changes made to the PPP by the new legislation include:

  • Allowing businesses 24 weeks (or until December 31, 2020, if it comes first) post-loan origination to use loan money that will qualify for forgiveness. This applies to both new and existing loans.
  • Reducing the amount of loan money required to be spent on payroll expenses from 75 percent to 60 percent, allowing more funds to be spent on rent, utility payments, and mortgage interest.
  • Extending the time period for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020 and adding new exceptions for employers who could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions.
  • Extending the loan terms from two to five years, unless otherwise modified by lenders and borrowers.
  • Permitting payroll tax deferment for businesses that receive PPP loans regardless of loan forgiveness. Under the CARES Act and subsequent interpretive guidance, payroll tax deferral could only be utilized up until a business received notification of loan forgiveness.
  • Replacing the six-month deferral of PPP payments due with deferral until the date on which the amount of loan forgiveness is provided to the lender.

The legislation does not clarify the parameters of the required PPP certification that “[c]urrent economic uncertainty makes [a] loan request necessary to support the ongoing operations of the Applicant.” It also does not address the deductibility of expenses paid for by PPP loan funds, as previously discussed in a prior post. Further PPP corrections and guidance are expected.

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

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.

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