Dear Client:
As information evolves in our current environment contending with COVID-19, we will continue to provide information we hope you find helpful. There have been some recent tax changes as a result of provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to
be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This
includes distributions that would have been required by April 1, 2020, due to the account owner’s
having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the
rules governing charitable deductions:
     1. Individuals will be able to claim a $300 above-the-line deduction for cash contributions made,
generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to
taxpayers claiming the standard deduction.
     2. The limitation on charitable deductions for individuals that is generally 60% of modified adjusted
gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public
charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced
by other contributions, can be as much as 100% of the contribution base. No connection between
the contributions and COVID-19 activities is required.
     3. Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified)
taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s
qualifying contributions, reduced by other contributions, can be as much as 25% of (modified)
taxable income. No connection between the contributions and COVID-19 activities is required.
     4. For contributions of food inventory made in 2020, the deduction limitation increases from 15% to
25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net
aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250
from income for benefits from an employer-sponsored educational assistance program. The CARES
Act expands the definition of expenses qualifying for the exclusion to include employer payments of
student loan debt made before January 1, 2021.

Break for remote care services provided by high deductible health plans. For plan years
beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for
tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the
CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts
to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid
for menstrual care products are treated as amounts paid for medical care. For reimbursements after
December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health
Reimbursement Arrangements.

Business only provisions
Employee retention credit for employers. Eligible employers can qualify for a refundable credit against,
generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the
Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19
crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not
government entities), whose operations for a calendar quarter have been fully or partially suspended
as a result of a government order limiting commerce, travel or group meetings. The credit is also
available to employers who have experienced a more than 50% reduction in quarterly receipts,
measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible
quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of
the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees
who aren’t providing services because of the business suspension or reduction in gross receipts
described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if
employees haven’t been prevented from providing services. The credit is provided for wages and
compensation, including health benefits, and is provided for the first $10,000 in eligible wages and
compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per
employee.

Wages don’t include
     1. Wages taken into account for purposes of the payroll credits provided by the earlier Families First
Coronavirus Response Act for required paid sick leave or required paid family leave,
     2. Wages taken into account for the employer income tax credit for paid family and medical leave
(under Code Sec. 45S) or
     3. Wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51).
An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers
who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit
is not available to employers receiving Small Business Interruption Loans. The credit is provided for
wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer
paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred
amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes
that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and
the employer and employee representative portion of Railroad Retirement taxes (that are attributable
to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had
debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by
the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment
Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs
arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax
years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to
carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable
income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning
before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the
present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for:
     1. A 100% deduction of NOLs arising in tax years before 2018, and
     2. A deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965
transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL
changes.

Deferral of noncorporate taxpayer loss limits. The CARES Act retroactively turns off the excess active
business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years
beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net
business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law
and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated
as part of any net operating loss for the year, but isn’t automatically carried forward to the next year.
Another technical amendment clarifies that excess business losses do not include any deduction under
Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any
deductions, gross income or gain attributable to performing services as an employee. And because
capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss
deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital
gain taken into account cannot exceed the lesser of capital gain net income from a trade or business
or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative
minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits
for tax years before 2021, at which time any remaining AMT credit could be claimed as fullyrefundable.
The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fullyrefundable
and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of
business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act
generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of
ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For
partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a
partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in
2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business
interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other
businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act
makes a technical correction to the 2017 Tax Law that retroactively treats
     1. A wide variety of interior, non-load-bearing building improvements (qualified improvement property
(QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year
MACRS property or
     2. If required to be treated as alternative depreciation system property, as eligible for a write-off over
20 years.

The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act
authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family
leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring
deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to
meet their funding obligations by delaying the due date for any contribution otherwise due during 2020
until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can
treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable. Amounts of Small Business Administration Section
7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of
indebtedness income if the forgiven amounts are used for one of several permitted purposes. The
loans have to be made during the period beginning on February 15, 2020 and ending on June 30,
2020. Additional details of the Paycheck Protection Program through the SBA are available on the
Treasury’s site. The following links provide additional details as to the loan:

     Overview of the Paycheck Protection Program

     Information for Borrowers

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19. 

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020. 

IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found at www.irs.gov/coronavirus. 

Should you have questions, please contact us, and we’d be happy to help.

Sincerely,

The Team at Penrod & George