Please find the following summary of the past week’s events with respect to tax-related events and the Payroll Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”) program we previously wrote about.
IRS issued Notice 2020-20 which amplifies Notice 2020-18. The Notice extended the due date for filing Forms 709 (Unites States Gift and Generation-Skipping Transfer Tax Return) and making payments of Federal gift and generation-skipping transfer tax from April 15, 2020 to July 15, 2020.
Payroll Protection Program
On April 2, 2020, the Small Business Administration (“SBA”) published an Interim Final Rule in an attempt to clarify the implementation of the PPP and the loan forgiveness provisions. A copy of the full PPP Interim Final Rule may be downloaded from the SBA website.
Of particular note are the following clarifications and additional guidance:
- SBA intends to promptly issue additional guidance with regard to the applicability to PPP loans of affiliation rules at 13 CFR Sections 121.103 and 121.301. Our previous communication contains a link to the SBA interpretation of those rules. The additional guidance is expected to be issued during the week of April 6, 2020.
- The SBA Administrator, in consultation with the Secretary of the Treasury (“Secretary”) determined that household employers are ineligible for PPP loans because they are not businesses.
- Independent contractors are not to be considered employees for purposes of the PPP loan calculations because they have the ability to apply for a PPP loan on their own. However, stay tuned for additional guidance on this point as SBA provides additional guidance this week. We are also hopeful that SBA will provide additional guidance on whether guaranteed payments for services should be included or excluded from the payroll cost computation of a small business concern.
- The interest rate on PPP loans is set at 100 basis points or 1 percent.
- PPP loans will mature in two years. The CARES Act (the “Act”) allowed for a maximum term of up to 10 years, but the Administrator and Secretary determined that a 2-year term was sufficient in light of the temporary economic dislocations caused by the coronavirus.
- The PPP loan program will be administered on a “first-come, first-serve” basis. It is important to note that the President tweeted that he will immediately ask Congress for more money to support small businesses under the PPP loan program if the allocated money runs out.
- Although the Act allowed for a potential deferral of payments up to one year, the Administrator and the Secretary have determined that a 6-month deferment period is appropriate in light of the modest interest rate and the loan forgiveness provisions contained in the Act.
- Although the Act is silent on this point, the Administrator and the Secretary have determined that not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. The Administrator determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll.
Economic Impact Payments
IRS issued News Release IR-2020-61, Economic impact payments: What you need to know. The news release addresses questions many individuals may have regarding these economic impact payments. The payments begin at $1,200 for each eligible individual and $500 for each qualifying child. However, the payments are reduced 5 percent for every dollar of Adjusted Gross Income (“AGI”) in excess of the prescribed thresholds.
The IRS will use 2018 tax return information for those individuals who have not yet filed their 2019 income tax returns.
In an acknowledgement that the issuance of paper checks to all qualifying individuals could take months to complete, the Treasury has indicated that they plan to develop a web-based portal for individuals to provide their banking information so that the economic impact payments can be direct deposited rather than issued through the mail.