The House of Representatives has passed the Senate approved CARES Act. Trump signed the act into law. Here are the takeaways from this and what to expect in the near future.

 

Keep American Workers Paid and Employed

Paycheck Protection Program
  • The Paycheck Protection Loan Program, budgeted at $349 billion, covers the period February 15, 2020 through June 30, 2020 and greatly expands SBA loan eligibility.  The loan program will allow businesses affected by the COVID-19 outbreak to borrow money for qualified costs related to employee compensation and benefits including the following:
  • payroll costs
  • continuation of health care benefits
  • employee compensation for employees making less than $100,000.00
  • mortgage interest obligations associated with the business
  • rent associated with the business
  • utility costs associated with the business
  • interest on debt incurred before the covered period
  • SBA loan eligibility is expanded by raising the maximum amount for such a loan by 2.5 times the average total monthly payroll costs, up to $10 million.  The interest rate may not to exceed 4%.
  • Companies that employ more than 500 employees are not eligible.
  • Waives the credit available elsewhere and personal guaranty requirements.
  • Provides additional relief for businesses in the accommodation and food services industries, certain franchise business and small businesses that receive financing through the Small Business Investment Company Act.
  • For eligibility purposes, the Act requires lenders to determine whether a business was operational on February 15, 2020, had employees for whom it paid salaries and payroll taxes, and/or a paid independent contractor, rather than determining repayment ability, not possible during this crisis.
Entrepreneurial Development

Provides funding to educate small businesses and their employees regarding federal resources available during this time, the hazards of COVID-19 and best practices around teleworking to prevent the spread of COVID-19.

State Trade Expansion Program

Allows for federal grant funds appropriated to support the State Trade Expansion Program (STEP), for exporters, in FY 2018 and FY 2019 to remain available for use through FY 2021.

Waiver of Matching Funds Requirement under the Women’s Business Center Program

Eliminates the non-federal match requirement for Women’s Business Centers for a period of three months.

Loan Forgiveness
  • Establishes that the borrower shall be eligible for loan forgiveness equal to the amount spent by during an 8-week period after the origination date on rent, payroll costs for employees making less than $100,000, interest on a mortgage, and utility payments. The amount forgiven may not exceed the principal of the loan.
  • Incentivizes companies to retain employees by reducing the amount forgiven proportionally by any reduction in employees retained compared to the prior year.
  • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
Minority Business Development Agency

Empowers the Department of Commerce, through the Minority Business Development Agency, to provide grants to minority business centers and minority chambers of commerce to provide education, training and advising related to accessing federal resources.

United States Treasury Program Management Authority

The Department of the Treasury, along with the SBA and the Chairman of the Farm Credit Administration will work together to establish criteria to allow other lenders to participate in the Paycheck Protection Program.

viii. Emergency Economic Injury Disaster Loans (“EIDLs”)
  • For the period between January 31, 2020 and December 31, 2020 EIDL eligibility is expanded to individuals operating sole proprietorships, independent contractors, cooperatives, non-profits and ESOPs with not more than 500 employees.
  • EIDLs may be approved by the SBA solely on the bases of an applicant’s credit score or by use of alternative methods to gauge the applicant’s ability to repay. Also, applicants may request an advance of up to $10,000 within three days after the SBA receives the application, if it is verified the entity is eligible under this program. The advance may be used for any allowable purposes under §7(b)(2) of the Small Business Act and is not subject to repayment, even if the loan request is denied.
ix. Subsidy for Certain Loan Payments
  • For loans under §7(a) of the Small Business Act, Title V of the Small Business Investment Act, and for loans made by an intermediary using §7(m) loans or grants, the Administrator shall pay the principal, interest, and fees owed for loans in regular servicing status for any such loans, that were made before the enactment of the Act for the following 6-month period, and for any such loans that were made between the date of enactment of the Act and six months after the date.
  • This authority to pay extends to loans resold on the secondary market. The payments shall be made not later than 30 days from when the first payment is due and shall be applied such that the borrower is relieved of any obligation to pay that amount.
  • The Administrator will waive limits on the maximum loan maturities for loans given deferral and extended maturity during the year following enactment. The Administrator will extend lender site visit requirement timelines as necessary because of COVID-19, to within 60 days of a non-default adverse event, and 90 days of a default. $17 billion is appropriated for the foregoing.

Assistance for American Workers, Families, and Businesses

Unemployment Insurance Provisions:

Eligibility
  • The law expands the scope of individuals who are eligible for unemployment benefits, including those who are furloughed or out of work as a direct result of COVID-19, self-employed or gig workers, and those who have exhausted existing state and federal unemployment benefit provisions.
  • The only individuals excluded from coverage are those who have the ability to telework with pay and those receiving paid sick leave or other paid benefits (even if they otherwise satisfy the criteria under the new law).
Administration of Benefit

The benefits are administered by each state and upon the state’s written agreement with the Secretary of Labor to provide the specific benefits.

Benefits Provide
  • The law provides an increase of $600 per week in the amounts customarily available for unemployment under state law.  This increase applies for payments made from the date of the law’s enactment through July 31, 2020.
  • States can agree to provide pandemic emergency unemployment compensation to individuals who have either exhausted all the benefits available to them under existing state and federal law or who are not otherwise eligible for benefits under existing state and federal law.  Individuals must be able and available to work and actively seeking work, unless they are unable to do so as a result of COVID-19 illness, quarantine, or movement restriction.
  • States can agree to waive the waiting period for receipt of benefits so that individuals do not experience gaps in income.
  • The federal government will temporarily fund short-time compensation under existing state plans.  States that do not yet have short-time compensation plans in place may agree to implement a plan, provided employers who enter into short-time compensation plans must be required to pay to the state half of the short-time compensation paid under the plan.
Time Periods for Expanded Benefits
  • The law provides unemployment benefit assistance to covered individuals who are not otherwise entitled to benefits under existing state or federal law for weeks of unemployment, partial unemployment, or inability to work caused by COVID-19 during the period January 27, 2020 through December 31, 2020.  This benefit waives the waiting period the state may have in place.
  • The total benefit may not extend beyond 39 weeks (including any unemployment benefits or extended benefits received under existing state or federal law), unless, after the law is enacted, the duration of extended benefits is extended, in which case the total benefit may extend beyond 39 weeks by that same additional period of extended benefits.
  • The $600 weekly benefit increase will be applicable to weekly payments made through the end of July 2020.
Social Security Treatment

The additional unemployment compensation provided is not considered “income” for purposes of Medicaid and CHIP.

Rebates and Other Individual Provisions:

Tax Credits

Eligible individual taxpayers can benefit from a tax credit of $1,200 for single filers and $2,400 for those filing jointly. Additionally, eligible individual taxpayers can receive a $500 tax credit per qualifying child. However, the tax credits will be phased-out by 5% of every dollar the taxpayer’s adjusted gross income exceeds: $150,000 for joint-filers, $112,500 for heads of household, and $75,000 for all other types of filers.

COVID-19 Related Distribution
  • A COVID-19 related distribution, defined under the CARES Act, is any distribution from an eligible retirement plan made: on or after January 1, 2020 and before December 31, 2020, to any individual who is diagnosed with COVID-19, whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours cut, or other factors determined by the Secretary of the Treasury during the COVID-19 pandemic.
  • Individuals who receive a COVID-19 related distribution will not be subject to the additional 10% tax penalty for early withdrawals from eligible retirement accounts, for all distributions up to an aggregate amount of $100,000.
  • COVID-19 related distributions made from both traditional eligible employer sponsored retirement plans and IRS accounts may be excluded from gross income.
Repayments of Coronavirus - Related Distributions

COVID-19 related distributions may be repaid within the three-year period from when the related distribution was made. The repayments of the related distributions for most retirement plans, including IRAs, will be treated favorably as a transfer to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of distribution.

Effects on the Limits on Loans from Qualified Employer Plans

The limit on loans from any qualified employer plan made to qualified individuals will be increased from $50,000 to $100,000, and should the due date of any such loan occur between the date of enactment of the CARES Act and December 31, 2020, it will be delayed for one year.

Effects on Minimum Distribution Threshold

The CARES Act temporarily waives the minimum distribution requirements for all eligible deferred compensation plans. This applies for all distributions made on or after January 1, 2020.

Tax Treatment of Charitable Donation
  • The CARES Act allows taxpayers to take an above-the-line tax deduction for charitable contributions of up to $300 for the tax year beginning in 2020.
  • Additionally, except for certain exclusions specified below, the percentage and excess carryover restrictions on charitable and other qualified contributions (a contribution to a corporation, trust, a state, or an organization of war veterans, etc.) are disregarded.
  • Qualified contributions for individuals will be allowed as deductions should the combined contributions not exceed the excess of the taxpayer’s adjusted gross income over the amount of the charitable contributions made by the individual that are covered by another part of the act (donations to a church, educational organization, private foundation, etc.). If these contributions exceed this excess, they will be added to the qualified contribution excess, which will carry-forward for up to five successive tax years.
  • Any qualified contributions made by corporations will be allowed as deductions only if these contributions do not exceed 25% of the taxable income of the corporation over the amount of all other charitable contributions. To the extent a corporation exceeds this limit, it will carry over the excess which will be eligible to be applied as charitable contribution deductions for the subsequent five tax years. This is provided that the excess qualified contribution amounts in question meet certain other restrictions, specifically, they must not exceed the lesser of  10% of the corporation’s taxable income or the total charitable deductions taken by the corporation during the taxable year over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year.

Business Provisions:

Employee Retention Credit for Employers Subject to Closure Due to COVID-19
  • Eligible employers will receive a credit against applicable employment taxes for each calendar quarter in an amount equal to 50% of the qualified wages with respect to each employee. The amount of qualified wages for each eligible employer will not exceed $10,000 per calendar quarter and the credit will not exceed the applicable employment taxes owed for the calendar quarter.
  • An eligible employer is defined as any employer which was carrying on a trade or business during calendar year 2020, and the operation of their trade or business was fully or partially suspended due to governmental order as a result of COVID-19
Delay of Payment of Employer Payroll Taxes

The CARES Act will allow for most employers to defer paying their share of the social security tax from the time the CARES Act is signed into law through December 31, 2020. Half of this deferred amount would be due on December 31, 2021 and the other half by December 31, 2022.

Modifications for Net Operating Losses (“NOL”)
  • There will be a temporary repeal of taxable income limitation including in the case of a taxable year beginning before January 1, 2021, the aggregate of the NOL carryovers to such year, plus the NOL carrybacks to such year, and in the case of a taxable year beginning after December 31, 2020, the sum of the aggregate amount of NOLs arising in taxable years beginning before January 1, 2018 and the lesser of the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017 or 80% of the excess of taxable income.
  • With special rules applicable to REITs, there will be special rules for losses arising in 2018, 2019 and 2020 including such loss being a NOL carryback to each of the 5 taxable years preceding the taxable year of the loss.
  •  For any taxable year beginning after December 31, 2020 and before January 1, 2026, any excess business loss of the taxpayer for the taxable year will not be allowed.
Modification of Credit for Prior Year Minimum Tax Liability of Corporations

The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.

Modification of Limitation on Business Interest

The provision temporarily increases the amount of interest expense businesses can deduct on their tax returns, by increasing the 30% limitation to 50% of taxable income with adjustments for 2019 and 2020. This is designed to allow the business to increase liquidity with a reduced cost of capital, so they can continue operations and keep employees on payroll.

Qualified Improvement Property

The provision enables businesses, with special attention to those in the hospitality industry, to write off immediately the costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision not only increases companies’ access to cash flow by allowing them to amend a prior year return and incentivizes them to continue to invest in improvements.

Title IV – Economic Stabilization and Assistance to Severely Distressed Sectors of the United States Economy 

 

Title IV of the Coronavirus Aid, Relief, and Economic Securities Act provides the Secretary of the Treasury with the authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens a variety of regulations prior legislation imposes through the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Economic Stabilization Act of 2008, and others.

 

COVID-19 Stabilization Act of 2020:

Emergency Relief and Taxpayer Protections
  • The Department of The Treasury may make up to $500 billion worth of loans and loan guarantees to eligible businesses, states, and municipalities. An eligible business means an air carrier or any other business that has not already received adequate economic relief in the form of loans or loan guarantees under the Act.
  • $46 billion is reserved for passenger air carriers, air cargo carriers, and businesses important to maintaining national security, in amounts up to $25 billion, $4 billion, and $17 billion, respectively.
  • $454 billion is reserved for Federal Reserve programs that support lending to eligible businesses, states, and municipalities. This establishes a credit facility through the Federal Reserve for businesses, states, and municipalities to get access to loans, loan guarantees, and other investments for distressed businesses.
  • Businesses that receive these loans are prohibited from paying dividends or repurchasing any outstanding equity interests while the loan or loan guarantee is outstanding, or for 12 months after. The Secretary of the Treasury can waive these restrictions, but he must testify before Congress regarding the waiver.
  • Businesses that receive these loans can only make loans or other advances to businesses that are created or organized in the United States.
  • The Secretary of the Treasury is to seek the implementation of a program to provide low-interest loans for eligible businesses, including nonprofit organizations, with between 500 and 10,000 employees. These loans will require no repayment for at least six months. However, these loans require a good-faith certification that the recipient intends to maintain at least 90 percent of its workforce, the recipient will not pay dividends or repurchase an equity security, the recipient will not outsource or offshore jobs during the loan or two years after, the recipient will not abrogate existing collective bargaining agreements, and the recipient will stay neutral regarding union organizing activity.
Debt Guarantee Authority

In order to backstop solvent depository institutions, it appears that the CARES ACT allows the FDIC to establish a program to insure these institutions without regard to a maximum amount.  All such guarantees are to last at least until December 31, 2020.

Temporary Relief from Troubled Debt Restructurings

Suspends GAAP requirements and loan determinations by financial institutions related to loan modifications that would be categorized as a troubled debt restructuring, if such loan modifications are related to COVID-19. Such suspensions cannot be applied to loans that were more than 30 days past due as of December 31, 2019.

Optional Temporary Relief from Current Credit Losses

Suspends the requirement to comply with the Financial Accounting Standards Board’s rules regarding the “Measurement of Credit Losses on Financial Instruments” during the covered period.

Foreclosure Cease and Consumer Right to Request Forbearance
  • Prohibits foreclosures on all federally backed mortgage loans for a 60-day period.
  • Provides up to 180 days of forbearance for borrowers of a federally backed mortgage loan who have experienced a financial hardship related to the COVID-19 emergency.
  • Applicable mortgages include those purchased by Fannie Mae and Freddie Mac, insured by HUD, VA, or USDA, or directly made by USDA.
Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans
  • Provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship.
  • Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period.
  • Applicable mortgages include loans to real property designed for five or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, or HUD.
Temporary Cease on Eviction Filings

For 120 days, beginning on the date of enactment, landlords are prohibited from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other charges to the tenant related to such nonpayment of rent where the landlord’s mortgage on that property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.

Emergency Relief and Taxpayer Protections
  • The Department of The Treasury may make up to $500 billion worth of loans and loan guarantees to eligible businesses, states, and municipalities. An eligible business means an air carrier or any other business that has not already received adequate economic relief in the form of loans or loan guarantees under the Act.
  • $46 billion is reserved for passenger air carriers, air cargo carriers, and businesses important to maintaining national security, in amounts up to $25 billion, $4 billion, and $17 billion, respectively.
  • $454 billion is reserved for Federal Reserve programs that support lending to eligible businesses, states, and municipalities. This establishes a credit facility through the Federal Reserve for businesses, states, and municipalities to get access to loans, loan guarantees, and other investments for distressed businesses.
  • Businesses that receive these loans are prohibited from paying dividends or repurchasing any outstanding equity interests while the loan or loan guarantee is outstanding, or for 12 months after. The Secretary of the Treasury can waive these restrictions, but he must testify before Congress regarding the waiver.
  • Businesses that receive these loans can only make loans or other advances to businesses that are created or organized in the United States.
  • The Secretary of the Treasury is to seek the implementation of a program to provide low-interest loans for eligible businesses, including nonprofit organizations, with between 500 and 10,000 employees. These loans will require no repayment for at least six months. However, these loans require a good-faith certification that the recipient intends to maintain at least 90 percent of its workforce, the recipient will not pay dividends or repurchase an equity security, the recipient will not outsource or offshore jobs during the loan or two years after, the recipient will not abrogate existing collective bargaining agreements, and the recipient will stay neutral regarding union organizing activity.
Debt Guarantee Authority

In order to backstop solvent depository institutions, it appears that the CARES ACT allows the FDIC to establish a program to insure these institutions without regard to a maximum amount.  All such guarantees are to last at least until December 31, 2020.

Temporary Relief from Troubled Debt Restructurings

Suspends GAAP requirements and loan determinations by financial institutions related to loan modifications that would be categorized as a troubled debt restructuring, if such loan modifications are related to COVID-19. Such suspensions cannot be applied to loans that were more than 30 days past due as of December 31, 2019.

Optional Temporary Relief from Current Credit Losses

Suspends the requirement to comply with the Financial Accounting Standards Board’s rules regarding the “Measurement of Credit Losses on Financial Instruments” during the covered period.

Foreclosure Cease and Consumer Right to Request Forbearance
  • Prohibits foreclosures on all federally backed mortgage loans for a 60-day period.
  • Provides up to 180 days of forbearance for borrowers of a federally backed mortgage loan who have experienced a financial hardship related to the COVID-19 emergency.
  • Applicable mortgages include those purchased by Fannie Mae and Freddie Mac, insured by HUD, VA, or USDA, or directly made by USDA.
Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans
  • Provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship.
  • Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period.
  • Applicable mortgages include loans to real property designed for five or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, or HUD.
Temporary Cease on Eviction Filings

For 120 days, beginning on the date of enactment, landlords are prohibited from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other charges to the tenant related to such nonpayment of rent where the landlord’s mortgage on that property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.

Air Carrier Worker Support:

Pandemic Relief for Aviation Workers

Provides financial assistance for the exclusive use of employee wages, salaries, and benefits in the amounts of up to $25 billion for passenger air carriers, up to $4 billion for cargo air carriers, and up to $3 billion for airline contractors.