September 30, 2020
COVID-19 Tax Law Updates
The Covid-19 pandemic has unleashed a slew of tax laws, relief provisions and loan programs. Among the most popular of the loan programs is the Paycheck Protection Program and colloquially called PPP. Since this PPP loan process is different from the usual SBA loan programs, guidance has come out through Frequently Asked Questions (FAQs) and interim rules with many still unanswered questions. The purpose of this program is to assist small businesses to continue paying its employees due to the shutdown. The carrot in the law was that the loan may be forgiven in whole or part and any payment to be paid after 6 months and within 2 years at 1% interest. Our Firm has kept up-to-the minute with all authoritative guidance.
An important point that is stressed in a number of PPP FAQs is: “in order to be eligible for PPP funds, applicants must make a “good faith certification” that, among other things, “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” The deadline to return any PPP loan funds was May 18, 2020.
Additional guidance clarified that borrowers who receive a PPP loan of less than $2 million will be deemed to have made the certification of necessity in good faith. Borrowers with loans greater than $2 million may have an adequate basis for making their required good-faith certification. If SBA reviews the loan and determines that there is a lack of adequate basis, they will seek repayment of the outstanding PPP loan balance, advise as to the ineligibility of loan forgiveness and if funds are repaid, no further administration enforcement or referrals to other agencies will be made.
Other programs of note have been the Employee Tax retention credit, family and sick leave credit, economic impact payments directly send by Treasury to individuals and families and relief regarding employee benefit plans and required minimum distributions. There is favorable tax treatment of up to $100,000 of retirement plan distributions (401(k), 403(b) and IRA accounts). No early distribution penalty for such withdrawals, withdrawals taxable over a 3-year period with repayments to the plan over this time frame fully non-taxable.
Delayed filing and payments to the IRS have been widely-publicized but many states have issued different rules for estimated tax payments, sales tax filing and payment, taxation for those who work in other states but are now working remotely and other specific tax law changes only applicable to their state. The delayed filing relief has been complicated by the SBA and states requesting 2019 tax filing information for returns that have not been filed. Tax and accounting staff that are working remotely are facing challenges securing information from clients with remote and reduced staffing levels.