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Tag: Families First Coronavirus Response Act (FFCRA)

IRS Guidance on Taxation of HHS Provider Relief Funds

On July 7, 2020, the Internal Revenue Service published a series of Frequently Asked Questions that address the taxation of payments to health care providers under the HHS Provider Relief Fund.

As part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), Congress appropriated $100 billion to reimburse eligible health care providers for health care-related expenses and/or lost revenue attributable to the COVID-19 pandemic.  The Paycheck Protection Program and Health Care Enhancement Act appropriated an additional $75 billion to the Provider Relief Fund.

The first FAQ addressed the issue of taxation for for-profit health care providers.  Specifically, the IRS was asked whether a for-profit health care provider is required to include HHS Provider Relief Fund payments in its calculation of “gross income” under Section 61 of the Internal Revenue Code (Code), or whether such payments were excluded from gross income as “qualified disaster relief payments” under Section 139 of the Code.

The IRS indicated that payment from the Provider Relief Fund do not qualify as qualified disaster relief payments under Section 139 of the Code.  As a result, these payments are includible in the gross income of the entity.  The IRS further indicated that this holds true even for businesses organized as sole proprietorships.

The second FAQ addressed the issue of taxation for tax-exempt organizations.  The IRS indicated that health care providers that are exempt from federal income taxation under Section 501(a) would normally not be subject to tax on payments from the Provider Relief Fund.  Notwithstanding this general rule, the IRS indicated that the payment may be subject to tax under Section 511 of the Code to the extent the payment is used to reimburse the provider for expenses or lost revenue attributable to an unrelated trade or business as defined in Section 513 of the Code.

The IRS FAQ can be viewed in its entirety by clicking here.  Members are advised to discuss the issue of potential taxation of any relief funding they received with their tax professionals.

5 Steps to an Emergency Small Business Coronavirus Loan

Download PDF from Akin Gump – Five Steps to an SBA PPP Loan

Step 1. Does my business qualify?

  • Were you in business on February 15, 2020?
  • Does your business have at least one but no more than 500 employees or do you meet the applicable SBA size standards for your industry?
  • Have you faced economic uncertainty as a result of the COVID-19 pandemic? Will you use the loan to maintain payroll and other business obligations?
  • Will you decline to take the “Employees Retention Tax Credit for Employers?”

If the answer to all of the questions above is “yes,” keep reading.

Step 2. How much of a loan can I get?

First, check your payroll records to see how much you paid in total over the past 12 months:

  • Salary, wages, tips, and commissions (no more than $100,000 per employee)
  • Payments for group health insurance and retirement programs like 401(k) plans
  • Payments to the state unemployment insurance fund

Second, take that total number, divide by 12, and multiply this result by 2.5. This is your loan amount. The loan cannot be more than $10 million.

Step 3. For what can I use the loan money?

You can use the loan proceeds to pay your employees, pay health insurance premiums, pay rent, pay utilities, and pay interest on any debts your business had before February 15, 2020.

Step 4. Do I have to pay the loan back?

If in the eight weeks after the loan is issued, the following is true, the loan will be entirely forgiven:

  1. All loan proceeds have been spent on allowable expenses, and no more than 25 percent of the money has been spent on non-payroll allowable expenses (like rent), AND
  2. You have maintained the same number of employees you had previously, and none of your employees have received a pay cut of more than 25 percent compared to their historical compensation.

*If you are required to layoff employees or reduce payroll during the eight week period, only a portion of your loan may be forgiven. Any portion of the loan that must be paid back will be at an interest rate of 1.0 percent over a two year term with the first payment being deferred six months after such determination is made.

Step 5. How do I apply?

Any bank or credit union will be able to offer these loans, and most will. All you need to do to apply is go to them with proof you were in business on February 15, 2020 and provide evidence of your payroll expenses (as defined in Step 2) for the 12 months leading up to the application. You should be able to get a loan disbursed to you the same day. Deadline is June 30, 2020. Application can be found here: Paycheck Protection Program Application Form.

© 2020 Akin Gump Strauss Hauer & Feld LLP

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