Corporate Tax Incentives (CTI), a partner of TempWorks Software, has developed an article to help staffing agencies navigate the COVID-19 crisis. Below is their guidance, as of 4/9/20, to help you capture tax incentives available from the new coronavirus stimulus packages.

Tax Incentives Play a Key Role in Assisting Businesses in the Coronavirus Stimulus Packages

Written by Darren Labrie with CTI LLC

10860 Gold Center Drive, Suite 225, Rancho Cordove, CA 95670 | Tel: 720-990-0123 | jbrubaker@ctillc.com

CTI is a full-service tax credit firm with a staff of tax lawyers and CPA’s. We are providing guidance or direct assist if clients or prospective clients need help capturing the tax incentives available from the recent coronavirus stimulus packages. We find that some companies simply want some assistance and guidance while others prefer to have us handle the credit calculations, etc. In addition, to the stimulus benefits, we are meeting with companies more than ever to free up cash flow through tax credits and incentives.

To date, three stimulus packages have been passed – with a fourth likely in development.

Signed March 3^rd of this year, provided $8.3 billion in funds for health agencies and testing, and for small-business loan subsidies.
Enacted March 18th and worth about $100 billion, had tax credits for employers offering paid sick leave, and increases to unemployment benefits and food assistance.
$2 trillion, completed Friday, includes checks to households, bailouts for airlines and other distressed industries, and loans and grants for small business.

Your Action Plan

It’s important you understand how to take full advantage of this overall opportunity. The incentives are intended to provide capital to your business through tax savings that can be secured by (1) reducing your tax burden and leaving more money on hand and (2) give you the opportunity to receive more funds through refunds from tax paid in prior years.

Explore opportunities provided in the Coronavirus stimulus packages to see what is applicable to your business.
Consider the potential benefit per program and overall, because capturing one opportunity can preclude you from claiming another.
Understand you will likely be filing amended tax returns as a part of securing additional capital for your business. Many of the opportunities included in the stimulus package provides for changes where you can go back and claim additional expenses or credits to generate refunds.
1. Take this opportunity to consider generating additional losses and credits by capturing overlooked or under-utilized tax credits and incentives: Work Opportunity Tax Credits and State/Local Incentives.
Take advantage of the extended tax filing period to allow you to maximize existing credits and incentives to reduce your tax burden and leave more money on hand.
Develop a tracking document to help identify, assess and assign responsibilities to manage this overall effort.

Coronavirus Stimulus Opportunities for Businesses

Paycheck Protection Program

These loans are going to be made by banks, credit unions and some other lenders, guaranteed 100% by the Small Business Association (SBA). Eligible borrowers are any business concern, nonprofit, veteran organization or tribal business concern with under 500 employees or such higher number as the Administration may set for the industry. Certain sole proprietors, independent contractors and self-employed persons are also eligible

Loans are up to the lesser of (i) 2.5 times average monthly payroll costs based on the prior year’s payroll costs (as defined, not including compensation in excess of $100,000) plus other disaster loans taken out after January 1, 2020, or (ii) $10,000,000.
Permissible uses of the proceeds include most employee-related expenses, interest payments on mortgages, rent, utilities and interest on existing debt.
The borrower must support its prior payroll costs and certify that (i) “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (ii) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments”; (iii) that there is no pending application for a 7(a) loan for the same purpose and amounts and no proceeds have or will be received from such a loan.
Terms will be as for other SBA §7(A) loans, but with no personal guarantees and no recourse to principals except for misuse of proceeds.
These loans are eligible for forgiveness. Remaining balances after forgiveness can have a maximum term of 10 years and a maximum rate of 4%.
Complete payment deferrals are available for six months to one year pursuant to a deferment process set by the SBA in guidance due out in 30 days.

Loan Forgiveness

The borrowers that qualify for small business loans will be eligible to have only those portions of their loans forgiven for the amounts spent during an 8-week period after the origination date of the loan for payments related to the following expenses:

Payroll costs.
Interest payments on a mortgage if the mortgage was incurred prior to February 15, 2020 (does not include principal or prepayment).
Rent payments under a lease that was in effect prior to February 15, 2020.
Utility payments made on utility services if such services were in use prior to February 15, 2020.

Economic Injury Disaster Loans

In most cases, loan amounts are up to one half of the prior year’s gross profit not to exceed $500,000, but if more is needed there is a more detailed calculation that may allow for up to $2,000,000 (historically 95% have been under $500,000). Eligible borrowers are small business (determined by the SBA size standard corresponding to the business’ NAICS code) and private non-profits (must sell something to generate revenue) who have suffered substantial economic injury as a result of a declared disaster (in this case, COVID-19). Substantial economic injury means the business is unable to meet its obligations and to pay ordinary and necessary operating expenses.

Permissible uses are for working capital needs. This includes fixed debt payments, payroll, accounts payable, and other bills that cannot be paid because of the impact of COVID-19.
Terms are interest at 3.75% for small businesses and 2.75% for private non-profits with up to a 30-year term. Loans over $25,000 will require collateral if available and owners of 20% or more will be asked to provide guaranties.
First year of principal and interest payments may be deferred.

Emergency Relief Loans

Up to $500 billion will be available. Loan terms are as to be determined by the Secretary of the Treasury in rules to be issued within 10 days.

Eligible borrowers are any businesses affected by or located in an area affected by a disaster to whom credit is not reasonably available and for whom the obligation is prudently incurred. The business must have incurred or expect to incur losses such that continued operation is jeopardized.

These loans are going to be made or guaranteed by the Federal Reserve.
Borrowers and affiliates will not be able to purchase affiliated equity securities if listed on a national exchange nor pay dividends on common stock.
Borrower must maintain employment levels as of March 24, 2020, to the extent practical, but in no event reduce levels by more than 10%.
Mid-sized businesses (between 500 and 10,000 employees) have special provisions and special requirements.
The Federal Reserve may establish a Main Street Lending Program.
Complete payment deferrals are available for six months to one year pursuant to a deferment process set by the SBA in guidance due out in 30 days.

Tax Credits for Paid Sick, Family and Medical Leave

There are payroll tax credits available to employers who provide COVID-19 related leave payments to employees.

Employee Retention Credit for Employers

A refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis is available to employers whose operations were suspended or gross receipts were reduced by more than 50% compared to the same quarter in 2019. Because the bill also defers the employer side of Social Security payroll taxes this year (discussed below), qualifying companies can receive payments in advance since this credit is refundable.

Delay of Payment of Employer Payroll Taxes

Employers and self-employed individuals can defer their portion of Social Security tax deposits owed in 2020 and can delay such payments of Social Security tax over the following two years, with half payable by the end of 2021 and the other half payable by the end of 2022.

Temporary repeal of taxable income limitation and modification of rules relating to net operating losses (NOLs)

Net operating losses are allowed to offset income without the 80% taxable income limitation enacted by the Tax Cut and Jobs Act, and in addition, net operating losses can be carried back five years to offset income from prior years. These temporary changes apply to net operating losses that arose in tax years 2018, 2019, or 2020.

Modification of limitation on losses for noncorporate taxpayers

Certain loss limitations are modified for noncorporate entities to permit them to utilize some losses previously disallowed in tax year beginning after December 31, 2017.

Corporate minimum tax credit is accelerated

Alternative Minimum Tax (AMT) credits that became available after the passage of the Tax Cut and Jobs Act (TCJA) that had to be allocated over future years and ending in 2021 can be accelerated to allow for current use of those credits. Thus, the CARES Act allows corporations to claim 100% of AMT credits in 2019. In addition, the CARES Act also provides for an election to take the entire refundable credit amount in 2018.

Deductibility of interest expense temporarily increased

Interest expense deduction limitations are increased from 30% of EBITDA to 50% of EBITDA for tax years beginning in 2019 and 2020.

Bonus depreciation technical correction for qualified improvement property

“Qualified improvement property” fix of error contained in TCJA. Accelerated depreciation is permitted with respect to certain improvements made by businesses – generally any improvement made to the interior portion of a nonresidential building any time after the building was placed in service – to allow for current depreciation on items that would otherwise have to be depreciated over a 39-year life. The fix is retroactive, which will allow taxpayers to file amended returns to obtain the benefit of this provision if applicable to them.

Please note: This is our current analysis as of 4/9/20 based on available information. It is subject to change as additional information is released.