On Friday, June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020, which was passed by the House of Representatives on May 28 and by the Senate on June 3. The bill loosens restrictions on the Paycheck Protection Program (PPP) and allows for changes including the following:

• Extends the covered period from eight to 24 weeks, ending no later than December 31, 2020.
• Reduces the requirement for the covered loan amount to be used on payroll costs from 75 to 60 percent.
• Allows businesses that receive PPP forgiveness to defer payroll taxes.
• Provides additional exemptions based on employee availability.
• Extends the deferral period for loan principal, interest, and fees.

PPP borrowers should continue to watch for additional guidance from the SBA regarding their loan and its forgiveness. If you have questions about your PPP loan or its forgiveness, please contact your HBK Advisor.

The Senate through the Coronavirus Aid, Relief and Economic Security Act (“The CARES Act”) has brought with it several economic relief provisions as well as expansions and modifications to several areas of the tax code in an attempt to provide relief to taxpayers during the COVID-19 pandemic.

Among the provisions included in the CARES Act is a modification of the excess business loss (“EBL”) limitation imposed under Internal Revenue Code (“IRC”) §461(l). The Tax Cuts and Jobs Act of 2017 (“TCJA“) created §461(l) which disallows the deduction of EBL’s by non-corporate taxpayers (e.g. individuals, trusts, and estates) starting in the 2018 tax year. The modification under the CARES Act retroactively eliminated the loss limitation for the 2018 and 2019 tax years and suspends the limitation until tax years beginning after December 31, 2020. This allows taxpayers to fully deduct business losses without taking into consideration the limitations imposed under §461(l).

Under TCJA, EBL’s are calculated by looking at the aggregate trade or business deductions compared to the aggregate trade or business gross income/gain. The aggregate of these deductions is taken over the sum of the aggregate gross income attributable to the trade or business and limited to an allowable loss of $250,000 for single filers or $500,000 for married filers that file a joint return. Any excess loss would be carried over as a net operating loss (“NOL”). This change provides an opportunity for taxpayers to amend their 2018 and 2019 (if filed subject to the limitation) tax returns to benefit from the previously disallowed losses. If the 2019 tax return has not yet been filed, the EBL limitations will no longer apply.

Through the CARES Act the current NOL rules from TCJA have been amended for the 2018-2020 tax years, allowing losses that arose in those years to be carried back five years. Additionally, there has been a suspension of the provision which limits NOL’s to only 80% of a taxpayer’s taxable income through tax years ending before 12/31/2020. This may permit taxpayers to fully offset taxable income by carrybacks or carryforwards. These changes together may provide opportunities for taxpayers to receive a refund of income taxes that have been paid in those prior years and receive an influx of cash to help mitigate the losses incurred by the pandemic interruptions.

Along with these opportunities, the CARES Act also includes a technical correction to the TCJA provisions of the EBL. Under the CARES Act, any excess business loss shall be “determined without regard to any deductions, gross income, or gains attributable to any trade or business of performing services as an employee.” This disallows W-2 wages from being included as business income for purposes of an EBL calculation when the limitation returns in the 2021 tax year. Previously, the tax forms used to calculate the EBL limitation drafted by the IRS allowed W-2 income to be included in business income. Additionally, the CARES Act noted that capital gains are included in the computation of EBL only up to the lesser of gains and losses attributable to a trade or business, or the net capital gain income of the taxpayer. The CARES Act also provided technical corrections to the language of §461(l) clarifying that EBL’s are calculated without including §172 or §199A deductions, and net capital losses are not included in the EBL calculations.

Taxpayers should also be mindful of their state tax implications/liabilities arising from these changes. There are several types of IRC conformity laws that a state may have adopted, for instance static conformity states conform to the updated IRC provisions from a set date, which may not include these changes under the CARES Act. States that have rolling conformity will conform to the current IRC that applies federally, and there are some states which have selective conformity which only adopt specific provisions of the IRC.

As taxpayers are looking to file their 2019 returns, these updates should be taken into consideration and changes to their 2018 returns may be beneficial. Please reach out to your HBK Tax Advisor to discuss how these changes may impact you.

On May 6th, the IRS updated its FAQs related to the Economic Impact Payments, found at the Economic Impact Payment Information Center, to clarify that deceased individuals do not qualify for the payments. The FAQs also indicate that individuals who are incarcerated do not qualify for the payment, a limitation that is not found in the text of the CARES Act. The IRS further clarified that individuals who are nonresident aliens in 2020 do not qualify, even if they are resident aliens during 2019. It should be noted that FAQs that are not officially published and are only available on the IRS website, are not a legal authority and can be changed at any time. Many times these FAQs are not reviewed and are not the official position of the IRS. As such, this information should be used as a guide only to provide insight into the position that the IRS may decide to take, and should generally not be officially relied on by taxpayers. With that said, the IRS is encouraging individuals who received payments that should not have been made to return the payments. How the payment is to be returned depends on how the payment was received: Received by Check and Not Cashed: If the check has not been cashed yet, individuals should write “VOID” in the endorsement section of the check and then mail it back to the IRS, along with a note indicating the reason for returning the check. The mailing address can be found on the FAQ page, linked above. Received by Direct Deposit or Check Cashed: If the payment was received directly into an individual’s bank account, or the check received was cashed, then the IRS is requesting individuals to write a personal check or money order made payable to “U.S. Treasury” and mail it to the IRS. Individuals should write “2020EIP” and the recipient’s social security number or tax identification number on the face of the check and should include a note indicating the reason for the payment. Again, the mailing address can be found on the FAQ page, linked above. The FAQs do not address how the IRS plans to enforce repayment of the Economic Impact Payments, or how they will recover payments if the payments have already been spent. Please contact your HBK advisor if you would like to discuss what this guidance means to your specific situation. As always, we will continue to keep you informed on any new developments

By now you most likely have heard about the Economic Impact Payments that were introduced with the CARES Act. It is an advanced payment of a 2020 tax credit of $1,200 for single filers or $2,400 for couples filing joint returns. Eligibility depends on AGI limitations which are applied by looking at a taxpayer’s 2018 or 2019 tax return. Please see our resource guide of the CARES Act and the Economic Impact Payments for more in depth information.

Non-Filing Tool
The IRS has released a tool on its website to help individuals who are not required to file an income tax return get their Economic Impact Payments. More information about this tool and who should use it can be found in our article IRS Launches a New Tool to Help Non-Filers Register for Economic Impact Payments.

Check Your Status
The IRS has also released a tool that can help individuals track their Economic Impact Payment status and allows them to enter additional information, if required. The tool can be found in the coronavirus section of the IRS website.

Economic Payment Issues
The Economic Impact Payments were released mid-April; however, many individuals have been reporting issues and have not yet received their payments. Some of the more common issues that individuals have been having regarding their Economic Impact Payments are as follows:

• Information has changed – If some information related to your tax return has changed since you last filed a tax return, such as moving or having new dependents, you may not have received your payment. A simple fix for this is to file your 2019 tax return if you have not done so already with your new information.
• Direct deposit was not set up with the IRS – Some taxpayers may not have had their bank account information included on their tax return and won’t be able to receive their payments via direct deposit. The “Get My Payment” tool can be used to enter your bank account information so you can have your payment sent via direct deposit. The IRS will also be sending out physical checks to anyone else who does not have their bank account information set up in the upcoming months.
• “Payment status not available” on the Get My Payment tool – Many users have reported seeing a message that reads “payment status not available” when checking their status using the Get My Payment tool. This can be a result of a few different reasons, the most common being that you don’t qualify for the payment or that the IRS is processing your information. The links provided above can help determine eligibility for the Economic Impact Payment and track your status. If you have recently filed your 2018 or 2019 tax return, the IRS may still be processing the return and won’t issue your payment until that process is complete. The Get My Payment tool gets updated overnight so there is no need to check your payment status more than once a day.
• Locked out of Get My Payment – As a security precaution, if the IRS is unable to verify your identity, you may be locked out of the system. These lockouts will generally just last one day, so you can try again the following day.
• Didn’t receive additional payments for children – There have been many reports of taxpayers not receiving the additional $500 payment for qualifying children. The IRS has been made aware of this issue and has stated that they are looking into it. This has not affected all taxpayers as others have reported receiving the additional $500 per child.
• Bank account is overdrawn – Banks do have the legal authority to withhold funds from accounts that have been overdrawn and present a negative balance. The CARES Act does not have a provision that makes an exception for the Economic Impact Payments. Some banks have decided to not seize any amounts related to the Economic Impact Payments.
• Married to a non-resident and file a joint tax return – For couples that file a joint tax return, both individuals must have a valid SSN to receive their payment, unless either partner is a member of the U.S. military during the tax year. It is still expected that the couple will qualify for the full credit when they file their 2020 tax return however, they will not receive an advanced payment.
• Resident of Puerto Rico – Due to special rules that are applicable to U.S. territories, direct deposits will not be released to residents of Puerto Rico until the U.S. Treasury has approved Puerto Rico’s distribution plan.

The IRS has a frequently asked questions page. The information on this page is being updated regularly, so the IRS is encouraging taxpayers to check back often. If you have any questions regarding the Economic Impact Payment, please consult your HBK tax advisor, we are standing by and ready to help.

Earlier today, the IRS launched a tool that would help individuals that normally don’t file a tax return get their Economic Impact Payments. The tool is located on the IRS website: https://www.irs.gov/coronavirus/economic-impact-payments and can be utilized by clicking the link that says Non-filers: Enter Payment Info Here.

Who should use the Non-Filer tool?

• Individuals that were not required to file a tax return for 2018 and 2019 and that do not receive Social Security retirement or disability benefits, or Railroad Retirement benefits. This may include single filers who made under $12,200 and married couples making less than $24,400 in 2019.
• Veterans beneficiaries and Supplemental Security Income (SSI) recipients (Note: The IRS is currently looking for a way to send the Economic Impact Payments automatically to SSI recipients and those who receive veterans disability compensation, pension or survivor benefits from the Department of Veterans Affairs, however one does not exist currently. Individuals in this category may use the Non-Filer tool on the IRS website or wait while the IRS looks for a way to simplify delivery of these payments to individuals in this category.)
• Individuals receiving Social Security, SSDI and Railroad Retirement beneficiaries with qualifying dependents. (While individuals in this category will automatically receive $1,200 Economic Impact Payments, individuals in this group with qualifying children under age 17 may use the Non-Filer tool on the IRS website to claim the additional $500 payment per child.)

The IRS is expected to release a second tool called Get My Payment by April 17th, 2020. This tool will help individuals track the status of their payment and provide them with the date their payment is scheduled to be deposited into their bank account or mailed to them.

If you have any questions regarding whether or not you qualify for an Economic Impact Payment or whether or not you should use the Non-Filer tool, please consult your HBK tax advisor, we are standing by and ready to help.

Amy Dalen, JD and Ben DiGirolamo, CPA, JD as they cover the individual and business tax provisions within the recently passed CARES Act.

Topics discussed include:
Individual Stimulus Payments
Retirement Plan Provisions
Employee Retention Tax Credit
Payroll Tax Deferral
Expanded NOL Provisions

Download the presentation.