Corona's Tax Impact #3

Help is on the Way for U.S. Small Businesses

On Friday afternoon, the latest stimulus package known as the CARES (CoronaVirus Aid Relief and Economic Security) Act was signed into law. Below we have targeted two provisions we believe are directly and most relevant to our startup clients.

Paycheck Protection Program (PPP)

Cash grants are available to companies who retain their current employees at their regular salaries. Some key points:

1. Grants are equal to 250% of average monthly payroll costs

2. Eligibility - Payroll costs for the current quarter are not less than the prior full quarter i.e. no reduction in salaries or in employees

3. The grants are initially classified as a loan at very favorable terms and will only be forgiven at no cost if the company proves it has not reduced their employees or the corresponding salaries

4. Companies which have already downsized can still reverse their decision and be eligible for this program.

5. The grant does not include payroll costs for any employees who have annual salaries over $100,000.

6. Loan applications are not yet available – it is estimated it will take at least 2 weeks before this will be in place.

We anticipate updating you once the process will be up and running as well as guiding you in receiving these grants, if applicable.

Net Operating Loss Carrybacks Recognizing that many companies will be facing losses for 2020, the IRS will allow such losses to be carried back up to 5 years and refund taxes paid during profitable years. Many startups will be adjusting their transfer pricing models for 2020 to reflect the current situation, some of which may result in a loss position. This loss could translate to real dollar savings, adjusting the 2019 taxes due and perhaps even result in a refund if taxes were paid in 2018 or prior years.

Please note that the above is our preliminary understanding of the relevant benefits. We will continue to share details as they become available.