C.A.R.E.S Act and Your Business
(Coronavirus Aid, Relief, and Economic Security Act)
While it is true that a centerpiece of the stimulus package is that it will provide direct financial assistance to Americans in the form of checks based on income, the bill as signed into law on Friday contains some key provisions which are aimed at assisting small businesses and real estate related entities. For those not interested in reading the entire 880 pages in CARES as I have, I have attempted to synopsize and highlight certain portions of the Act which may be relevant to you and your business. If you have a question regarding any sections of the Act not referenced, please feel free to contact me or reach out to me with any questions or comments with respect to this memo and, above all else, please stay safe and distanced appropriately.
· The “Administrator” of the Act is the Small Business Administration (SBA).
· Small business concern has the meaning given in section 3 of the Small Business Act (15USC636).
· Covered period refers to the period from February 15, 2020 to June 30, 2020.
· “Eligible self-employed individual” has the meaning given in the form in section 7002(b) of the Families First Coronavirus Response Act (Public Law 116-127).
· In general, organizations or companies with less than 500 employees shall be eligible to receive a covered loan. The term “employee” includes individuals employed on a full-time, part-time, or other basis.
· Payroll costs include “the sum of payments or any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as provided for the covered period.“It shall not include – (bb) taxes imposed or withheld under Chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period.
· In general, during the covered period, individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible to receive a covered loan.
· With respect to a covered loan, the maximum “amount shall be the lesser of the sum of the product obtained by multiplying the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made” (except in the case of a seasonal employer), and “the outstanding amount of a loan that was made during the period beginning on January 31, 2020, and ending on the date on which covered loans are made available to be refinanced under the covered loan” with an exception for an otherwise “eligible recipient” that was not in business during the period beginning on February 15, 2019 and ending on June 30, 2019; or $10,000,000.
· Allowable uses of a covered loan are payroll costs, group healthcare costs, salaries and commissions, mortgage interest, rent, utilities, and interest on debt incurred before the covered period.
· There is no fee due with an application nor is a personal guarantee or pledge of collateral required for a covered loan. The interest rate may not exceed 4%.
· Lenders are required to provide complete payment deferment relief for impacted borrowers with covered loans for no less than 6 months and not more than 1 year. There shall be no prepayment penalty for a covered loan.
· “Covered small business concerns” refers to a small business which has experienced as a result of COVID-19 any of the following: supply chain disruptions, staffing challenges, a decrease in gross receipts or customers, or a closure.
· An eligible recipient of a covered loan shall qualify for forgiveness in an amount equal to the sum of the covered costs and payments made during the covered period. The amount of forgiveness shall be excluded from the gross income of the taxpayer.
· $10,000 advances are available for eligible entities, as previously cited, during the covered period of January 31, 2020 – December 31, 2020. The SBA may approve an applicant based solely on credit score with no tax return submission requirement and may use alternative appropriate methods for determining eligibility. An eligible entity may apply with self-certification. The advance may be used for any of the allowable purposes cited including providing paid sick leave to employees who are unable to work due to COVID-19. The advance amount does not have to be repaid.
· In the case of an individual taxpayer, there shall be a tax credit of $1,200 ($2400 in the case of eligible individuals filing jointly) plus $500 per qualifying child. The amount of the credit allowed shall be reduced by 5% of the taxpayer’s adjusted gross income which exceeds $150,000 (for joint returns), $112,500 for heads of households, and $75,000 for individual taxpayers. “Eligible individuals” exclude any non-resident alien individual, any individual for whom a deduction is allowable to another taxpayer, and an estate or trust. No refund or credit shall be allowed after December 31, 2020.
· In general, a net operating loss for a REIT year shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss. Special Rule: in the case of any net operating loss for a taxable year which is not in a REIT year, such loss shall not be carried to any preceding taxable year which is a REIT year. REIT YEAR – for purposes of this subparagraph, the term “REIT year” means any taxable year for which the provisions of part II of subchapter M (relating to real estate investment trusts) apply to the taxpayer.
· During the covered period, a borrower with a Federally backed mortgage loan who is experiencing a financial hardship as a result of the COVID-19 emergency may request forbearance on the loan regardless of delinquency status. The forbearance may be granted for up to 180 days and shall be extended for an additional period of up to 180 days in special circumstances. No fees, penalties, nor additional interest will be incurred by the borrower during the forbearance period. In order to qualify, the borrower only has to attest to a financial hardship caused by the COVID-19 emergency. Also, a multifamily borrower with a Federally backed multifamily mortgage loan may request a forbearance due to the COVID-19 emergency. The forbearance can be granted for a period of up to ninety days. The forbearance can be discontinued by the borrower at any time. Certain restrictions on tenant evictions apply to a borrower receiving a forbearance. A multifamily borrower may not issue a notice to vacate until after the expiration of the forbearance. A multifamily real property refers to a dwelling designed principally for five or more families. The covered period expires either on the sooner of the termination date of the emergency or on December 31, 2020.