As has been said, “the best-laid plans of mice and men often go awry.” That was definitely the case with the Paycheck Protection Program in Congress’ second coronavirus legislation, the CARES Act.
You likely have heard stories about how legislation to allow for small business loans fell into the hands of companies that could hardly be called “small.” Well, despite that conduct on the part of some large businesses, the ship has been righted to some degree with the addition of the newest coronavirus relief package passed by the House of Representatives on Thursday, April 23, 2020, by members of Congress clad in face masks and with limited time to enter their votes on the House floor.
In this article, we will cover some of the history of the small business loan debacle, and how the latest legislation is intended to fix the problem.
If you are a small business and are seeking a tax strategy attorney for businesses in Florida, we invite you to contact The Law Office of Mary King, P.L. We are tax strategy attorneys for businesses in Florida, and we provide a number of financial services for businesses throughout Florida. Call today at 941-906-7585, or fill out our contact form. We are here to help you.
The CARES Act – Some Unintended Consequences
The CARES Act was passed a few weeks ago with the intention of providing economic stimulus nationwide so that, among other provisions, employers could remain in business, and employees could continue to receive a paycheck during the devastating COVID-19 pandemic.
Indeed, there were three main pillars of the stimulus package:
1. Having employees continue to receive a paycheck;
2. Provide support to the healthcare industry; and
3. Keep the economy from dipping too deeply.
The CARES Act earmarked a total of $2.2 trillion for the various programs contained in the bill.
One major part of the CARES Act was a program called the Paycheck Protection Program and the Loan Forgiveness program. Those two programs were intended to work hand in hand. The programs provided for the following:
1. Small Business Loans. The CARES Act allowed the Small Business Administration (SBA) to provide up to $349 billion in business loans to companies that, in general, had less than 500 employees, and to self-employed individuals.
2. Amount of Loan. The loans were to be either the less of $10 million or 250% of the borrower’s average monthly payroll costs for one year.
3. Forgiveness. The loan borrower also would be able to get complete forgiveness of the loan for eight weeks of payroll costs, mortgage interest, rent, and utility costs.
By having the SBA loan pertain to companies that were fewer than 500 employees, the bill was clearly meant to help smaller businesses in the country.
Unfortunately, the Paycheck Protection Program created a bit of news because some banks loaned money to rather large, even publicly traded, corporations like Shake Shack, Ruth’s Chris Steak House, and Potbelly Sandwich Shop, and then the SBA fund ran dry. (To give some context, Ruth’s Chris Steak House is a chain with 150 locations that is valued at $250 million. It ultimately gave back the $20 million it received.)
The SBA later issued guidelines in an effort to encourage larger companies, like those listed above, to return the loan money. In addition, Congress just passed another bill to provide more funding to the Paycheck Protection Program.
New Legislation to Help Distressed Small Businesses
Passing with a clear margin, the newest coronavirus relief package contains $320 billion to restart the depleted Paycheck Protection loan program, as well as provide $100 billion in funds for hospitals and coronavirus testing. The legislation is seen as an interim step after the $2.2 trillion CARES Act and was largely meant to shore up the Paycheck Protection Program that was so quickly overwhelmed with loan requests.
Tax Issues with the SBA Loan
Now that more money has been provided for the Paycheck Protection Program, it is likely that news of problems with the program will diminish. Then, the next question becomes, what amount of the loan may be taxable?
As noted, a portion of the loan can be forgiven. In fact, to the extent that the loan is used to pay for payroll costs, mortgage interest, rent, and utilities in the first eight weeks of the loan, that money will be entirely forgiven, i.e, does not need to be paid back.
Better still, the loans forgiven will not be counted as taxable income. That is good news for businesses hard hit by the massive economic downturn in the last month.
In sum, the latest piece of legislation to come from Congress, which primarily infuses much-needed money into the Paycheck Protection Program, seems to have dealt with the issue of unequal apportionment of the SBA loan money that was earmarked for small businesses in distress.
If you are a small, or large, a business looking for a tax strategy attorney for businesses in Florida, you may want to contact the Law Office of Mary E. King.
Get the Help of a Tax Strategy Attorney for Businesses In Florida – Mary E. King, Esq.
If you have questions about COVID-19 legislation, are struggling with back taxes, or if you are a business that needs to plan tax payments throughout the year, then you need the help of an attorney who has experience with tax planning attorney in Florida.
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Call our IRS problem-solving services firm in Florida today to schedule an initial consultation. With years of experience, the Law Office of Mary E. King can make sure that your tax issues are resolved in your favor. Fill out our online contact form, or call us at 941-906-7585.