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Business of Tax: Planners Should Take Care Giving CARES Act Advice

Posted on Mar. 30, 2020

Tax advisers have their work cut out for them when it comes to helping their clients navigate the various provisions of the just-enacted coronavirus relief legislation to ensure they choose the best options.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), signed into law March 27, features several different relief programs to help businesses stay afloat, but some of them are mutually exclusive, meaning tax advisers need to understand the ins and outs of each one to know which makes the most sense for their clients.

“There’s a tax strategy component to deciding which one of these programs you want your client to tap into,” Rick Lazio of Alliantgroup LP said on a March 27 webinar hosted by the firm.

One of the biggest components of the bill is a $350 billion expansion loan program administered by the Small Business Administration focused on keeping businesses afloat. The loans can be used to cover a range of employee-related needs, including salaries and paid sick leave, and businesses with up to 500 employees can receive a maximum of $10 million.

These loans also feature a loan forgiveness aspect, Lazio noted. If the business retains its employees over an eight-week period after the date of the loan origination, the repayment of the loan can be forgiven, which essentially turns the loans into a grant program, he said.

Another option for businesses is the employee retention credit, which is a refundable payroll tax credit for 50 percent of wages paid by an employer whose operations have been affected by a COVID-19 suspension order, or whose gross receipts have declined by more than 50 percent compared with the same quarter the previous year.

For employers with more than 100 employees, qualified wages include those paid to employees who are not working because of COVID-19-related circumstances. For employers with 100 or fewer employees, all employee wages qualify for the credit, which caps at the first $10,000 of compensation, including healthcare benefits, that would be paid to an employee.

However, employers that claim the retention credits are not eligible for the SBA loans, Lazio noted. Nor can employers claim the work opportunity tax credit if they claim the retention credit, which is especially important for restaurant owners and retailers to consider, he added.

Congress is very well meaning, but it’s a little bit of a navigation through all the bells and whistles of it,” Alliantgroup’s Dean Zerbe said of the retention credit.

A third option for businesses is the employer payroll tax holiday that lets employers defer the employer share of 2020 payroll tax, paying it back in 2021 and 2022. “This essentially is about a $700 billion interest-free loan to businesses,” Zerbe said. However, employers who receive forgiven SBA loans through the CARES Act are not eligible for this deferral.

“In talking with clients and CPA firms, it’s all about ‘How can I get cash now, now, now?’ That’s what businesses desperately need,” Zerbe said. The SBA loans, the retention credit, and the payroll holiday are all big ways to do that, but “you can’t take all of the above in terms of what’s out there,” he said.

Zerbe said his firm is working on a “decision tree” to help clients navigate their way through the various opportunities for relief in the CARES Act.

Challenging Times Ahead

Tax advisers who were finally coming to grips with the nuances of the Tax Cuts and Jobs Act’s changes to the tax code now have another new tax law to navigate in the middle of tax season.

Julio Gonzalez, CEO of Engineered Tax Services, noted that several provisions in the CARES Act change the 2019 tax laws for which many taxpayers have already filed tax returns, including the modification of net operating losses that allows carrybacks of up to five years, an expanded interest deduction, and the technical correction to the so-called retail glitch, among others.

Those provisions have “completely changed the returns we just filed,” Gonzalez told Tax Notes. Partnership tax returns were due March 16, but now CPA firms are going to have to go back, read the new rules, understand them, and then communicate to their clients that it “probably makes sense to amend all your tax returns . . . because you’re going to get a much better result from a tax preservation standpoint,” he said.

But doing that won’t be easy, Gonzalez continued, because accounting firms will have to wait for their software companies to update their software to reflect the new law. “It’s a monumental task,” he said, adding that it could take months for the software companies to get up to speed with all the changes.

Practitioners will also need guidance from the IRS to implement many of these provisions, Gonzales  continued. That guidance should be simple and offer taxpayers a lot of leeway in compliance, he said, noting it could also help get the guidance published more quickly.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

Correction, March 30, 2020: Partnership tax returns, not corporate returns, were due in March.

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