|How recent changes to Tax and Bankruptcy Law will impact working capital|
|This blog is broken down into three sections.
|Positive Impact on working capital
H.R. 1799—a bill to extend the Paycheck Protection Program (PPP) through May 31, 2021. Loan applications must be in by May 31, 2021.
The Rescue Act includes several compensation benefit-related provisions, such as measures that:
o employee retention credit (ERC) extended through December 31, 2021
o paid sick leave and Family Medical Leave Act credit extended through September 30, 2021
o Expand the “covered employee” definition under section 162(m) thereby limiting the deduction for certain employee compensation for public companies for tax years beginning after December 31, 2026
| $15 billion for the “Shuttered Venue Operators” (SVO) grant program which is administered by the Small Business Administration (SBA).
o SVO grants will not be available if the venue operator has filed an application or received support under the Paycheck Protection Program (PPP) after December 27, 2020.
Extension of time to repay the deferred payroll taxes:
o Postpones to January 1, 2022 (rather than May 1, 2021) the period when interest, penalties, and additions to tax for late payment with respect to any unpaid deferred taxes will begin to accrue
Certain loan forbearance programs / mortgage loans / and some lease arrangements are extended to September 30, 2021 RE safe harbor rules
Employee retention credit.
o Only applies if revenue down 50% or more.
o Different rules for companies under 100 and over 100
o Under 100 all employees qualify.
• Over 100 on employees paid and did not provide services apply.
• The IRS has provided formula guidance on the computation.
• The retention credit is 50% of qualified wages as defined.
New bankruptcy relief measures – Landlords
o extends commercial rent forbearance for certain small business tenants experiencing material financial hardship
o lengthens the time period for commercial tenants to assume or reject a commercial lease,
o establishes protections for certain commercial deferred rental payment agreements.
o The new law extends the initial time period for a commercial tenant to assume or reject a lease from 120 days to 210 days. Sunset Dec 27, 2021
Changes to the rent claw back rule as preferential payments.
Negative Impact on Working Capital
The Rescue Act expands highly compensated to five highest paid (CEO, CFO and the three highest paid executive officers) starting after December 31, 2026.
o Top five making over $1 million a year working for a public company.
o Expected to raise $6 billion
Large multinational corps.
o Repeal of onetime ability to allocate interest on a worldwide basis. Expected to raise $22 billion over 10 years
Increased tax audit activity with the focus on multinational and transfer pricing.
o Carryback of losses usually results in an audit.
o Large PPP loans may result in an audit.
Items of personal interest
The IRS ruled that amounts paid for personal protective equipment (PPE) for the primary purpose of preventing the spread of Covid 19 are medical expenses. Really what else would they be.
Those who work for a Mass company and traveled to Mass from another state to the office pre Covid 19.
o Mass wants your tax dollars
o Case is before Supreme Court – no decision if they will hear the case