2020 The Business Provisions of the CARES Act

2020THE
BUSINESS
PROVISIONS
OF THE
CARES ACT

CARES ACT
BUSINESS PROVISIONS
• Paycheck Protection Plan (PPP Loans) – covered in-depth
in a different webinar
• Employee Retention Credit
• Delayed Payment of Employer Payroll Taxes
• Modifications for Net Operating Losses
• Excess Business Losses of Non-Corporate Taxpayers
• Depreciation of Qualified Improvement Property
• Business Interest Deduction Limitation
• Employer-Paid Student Loans
• Pension-related Provisions

EMPLOYEE RETENTION CREDIT
• Credit of 50% of qualified wages paid to employees who are
not working due to the employer’s full or partial suspension of
business or a significant decline in gross receipts.
• The credit is claimed on a quarterly basis
• What is covered?
– Wages, including employer-paid health insurance
– Limited to $10,000 (annual total) per employee
– Applies against the Employer’s portion of Social Security
Taxes.

Eligible Employer
• Trade or business is fully or partially suspended during the
calendar quarter due to orders from an appropriate
governmental authority limiting commerce, travel, or group
meetings (for commercial, social, religious, or other purposes)
due to the coronavirus disease (COVID-19); or
• Experiences a 50% decline in gross receipts for the calendar
quarter compared to the same quarter in the prior year.
Note: if an employer receives loan forgiveness under another
provision of the CARES Act (such as PPP Loan forgiveness), then
they are not eligible for this credit.

Qualified Wages
• Wages paid from March 13, 2020 through December 31, 2020.
• If the employer has more than 100 full-time employees,
qualified wages are wages paid to employees who cannot
work during the COVID-19-related circumstances described
above.
• If the employer has 100 or fewer full-time employees, all
employee wages qualify for the credit, whether the employer
is open for business or subject to a shut-down order.

Credit Limitations
• Credit is limited to the Employer’s portion of Social Security Tax,
reduced by:
– Qualified veterans employment [under IRC §3111(d)]
– Qualified small business research expenditures [under IRC
§3111(f)], and
– Required qualified sick leave & family leave wages paid
(FFCRA)
• If there is a shortfall in employer Social Security tax then the
difference is a refundable tax credit, which can be applied
against other payroll taxes, and/or be claimed on Form 7200.

ADVANCE PAYMENT OF
EMPLOYER CREDITS

DELAYED PAYMENT OF
EMPLOYER PAYROLL TAXES
• Payroll taxes due from the period beginning on March 27,
2020, the date the CARES Act is signed into law, and ending on
December 31, 2020 can be deferred. The total payroll taxes
incurred by employers and 50% of payroll taxes incurred by
self-employed persons qualify for the deferral.
• The employer portion of payroll taxes due from the period
beginning on March 27, 2020 and ending on December 31,
2020 are deferred. During this payroll tax deferral period, the
total payroll taxes incurred by employers and 50% of payroll
taxes by self-employed individuals incurred for OASDI qualify
for the deferral.
– 50% of the deferred payroll taxes are due on December 31,
2021; and
– the remaining 50% is due on December 31, 2022.

DELAYED PAYMENT OF
EMPLOYER PAYROLL TAXES
Excluded Employers
• Any taxpayer that has had debt forgiven under Act Sec. 1106 of
the CARES Act (regarding a loan guaranteed under the
Paycheck Protection Program of the Small Business Act (15
U.S.C. 636(a)(36))), [PPP Loan with Forgiveness] or
• debt forgiven under Act Sec. 1109 of the CARES Act (regarding
loans under U.S. Treasury Program Management Authority)
(Act Sec. 2302(a)(3) of the CARES Act).

MODIFICATIONS FOR
NET OPERATING LOSSES
• Net operating losses (NOLs) arising in tax years
beginning in 2018, 2019, and 2020 have a five-year
carryback period and an unlimited carryforward
period.
• The provision limiting an NOL deduction to 80
percent of taxable income does not apply to NOLs
arising in these years.
• A technical correction concerning taxpayers with a
2017/2018 fiscal year clarifies that the elimination of
the former two-year carryback period applies to
tax years beginning after 2017 and not to tax years
ending after 2017.

EXCESS BUSINESS LOSSES OF
NON-CORPORATE TAXPAYERS
• The limitation on the deduction of excess business losses for
noncorporate taxpayers will not apply for tax years beginning in
2018, 2019, and 2020. The deduction limitation will apply for tax
years beginning after December 31, 2020. A number of technical
amendments clarify the computation of the deduction.
• Under the TCJA of 2017, a noncorporate taxpayer is not allowed
to claim a deduction for excess business losses for tax years
beginning after December 31, 2017, and before January 1, 2026.
Any disallowed excess business losses are treated as part of the
taxpayer’s net operating loss (NOL) carryover to the following
tax year. The taxpayer applies the at-risk rules and passive
activity loss rules before application of the rules for excess
business losses. However, during the period that excess
business losses are disallowed, the limit on excess farm losses
of a noncorporate taxpayer do not apply (IRC §461(l)).

• An excess business loss is the excess, if any, of
the taxpayer’s aggregate deductions for the tax
year from the taxpayer’s trades or businesses,
determined without regard to whether or not
such deductions are disallowed for such tax year
under the excess business loss limitation; over
the sum of:
– The taxpayer’s aggregate gross income or gain for the tax year
from such trades or businesses; plus:
– $250,000, adjusted annually for inflation ($255,000 in 2019, $259,000
in 2020) [single taxpayer] or (200 percent of the $250,000 amount
for a joint return: $510,000 in 2019 and $518,000 in 2020).

• For a partnership and S corporation, the
limit is applied at the partner or
shareholder level.
• A taxpayer subject to this limitation on a
2018 tax return should consider amending
their 2018 for the limitation to be waived.

Technical amendments. The excess business loss computation is clarified:
• Aggregate deductions in determining the loss are computed without regard
to any deduction allowable under IRC §172 for net operating losses (NOLs) or
IRC §199A for qualified business income (QBI) (IRC §461(l)(3)(A)(i), as amended
by the CARES Act).
• Deductions for losses from sales or exchanges of capital assets shall not be
taken into account for purposes of aggregate deductions in determining the
loss (IRC §461(l)(3)(B)(i), as added by the CARES Act).
• The taxpayer’s aggregate gross income or gain for the tax year from its trades
or businesses, plus $250,000, ($500,000 for joint returns) (adjusted annually for
inflation) is determined without regard to any deductions, gross income, or
gains attributable to any trade or business of performing services as an
employee (IRC §461(l)(3)(A), as amended by the CARES Act).
• The amount of gains from sales or exchanges of capital assets taken into
account in determining aggregate gross income or gain may not exceed the
lesser of (1) the capital gain net income determined by taking into account
only gains and losses attributable to a trade or business, or (2) the capital gain
net income (IRC §461(l)(3)(B)(ii), as added by the CARES Act).

DEPRECIATION OF QUALIFIED
IMPROVEMENT PROPERTY
The CARES Act now enables businesses to depreciate qualified
improvement property over a 15-year recovery life under Modified
Accelerated Cost Recovery System (MACRS) retroactively for tax
years beginning after December 31, 2017, adding a technical
correction under the Tax Cuts and Jobs Act (TCJA). In addition,
qualified improvement property placed in service after December
31, 2017 can qualify for 100% bonus depreciation.
Action steps to take for qualified improvement property:
• If taxpayers only filed one return using a 39-year recovery period
(e.g., a calendar year taxpayer who has not filed a 2019 return),
the taxpayers may file an amended return to correct the
recovery period or may file Form 3115 with their current year
return; or
• If taxpayers filed 2 or more years of returns using a 39-year
recovery period, the taxpayers will need to file Form 3115.

BUSINESS INTEREST
DEDUCTION LIMITATION
TCJA 2017 limited this to 30% for businesses with over $25 Million in average
gross receipts, with some exceptions.
Under the CARES Act, the business interest deduction limit increases to 50
percent of the taxpayer’s adjusted taxable income (ATI) for the 2019 and 2020
tax years. In the case of a partnership, however, the 50 percent limitation
applies only for the 2020 tax year. A taxpayer may also elect for the 2020 year
only to use its 2019 ATI in calculating the limitation.
• Partner in Partnership – 50 percent of the excess business interest allocated
is treated as business interest paid or accrued by the partner in the
partner’s first tax year beginning in 2020 but only if the partner is not
otherwise subject to the IRC §163(j) limit in that year;
• 50 percent of the excess business interest allocated is treated as business
interest paid or accrued by the partner in the next succeeding tax year, but
only to the extent the partner is allocated excess taxable income or excess
business interest income from the partnership in the succeeding year.

EMPLOYER-PAID
STUDENT LOANS
Student loan payments made by an employer paid after March 27, 2020 and
before January 1, 2021 can be excluded from the employee’s income up to
$5,250. Any payments in excess of $5,250 would still be subject to income and
employment taxes. [§127(a)]
• Employer’s plan requirements to qualify:
• The Employer must have a nondiscriminatory educational assistance plan,
• The plan must exclude payments for the following:
– tools or supplies (other than textbooks) that the employee may retain after
completing a course of instruction;
– meals, lodging, or transportation; or
– education, involving sports, games, or hobbies, unless the education involves
the employer's business, has a reasonable relationship to an activity
maintained by the employer for profit or is required as part of a degree
program.

EMPLOYER-PAID
STUDENT LOANS
• The plan must be in writing, and must comply with
the provisions of IRC §127.
• No more than 5% of the amounts paid can go to
owners of more than a 5% ownership interest in
the business (attribution rules apply). [127(b)(3)]
• Double Benefits: No deduction is allowed for
student loan interest payments made by the
employer that are excluded from the employee’s
gross income.

RETIREMENT FUNDS
There are some special provisions relating to
retirement accounts, including the following:
• Waiver of the 10% early withdrawal penalty.
• No Required Minimum Distributions (RMDs) for 2020
• IRA deadline for 2019 is now July 15, 2020.
For certain qualifying employees (most won’t qualify)
• Changes to Withdrawal provisions and Loan
provisions

AT COOK MARTIN POULSON WE ARE
CONSTANTLY STRIVING TO MAKE A
DIFFERENCE IN PEOPLES LIVES.
We would love to find additional ways to help you solve the problems that keep
you awake at night. Please contact us at 801-252-5649 for our Salt Lake City
professionals or 435-258-7405 for our Logan professionals.
If you would like further information please check out our resources page here:
https://cookmartin.com/coronavirus/
If you would like a copy of these slides and other resources, please email Megan
Walker:
mwalker@cookmartin.com
info@cookmartin.com
Salt Lake:
(801) 252-5649
Logan:
(435) 258-7405

2020 The Business Provisions of the CARES Act

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2020 The Business Provisions of the CARES Act