managing your taxes, finance, and cash flow
TRANSCRIPT
Managing Your Taxes, Finance, and Cash Flow
March 11, 2021
Presented by:
Illinois Restaurant Association, Plante Moran, and Taft Law,
in conjunction with
Cook County Board President Toni Preckwinkle and the Cook County Community Recovery Initiative including partners Illinois Business Immigration
Coalition and National Partnership for New Americans.
Para escuchar en español, use el botón Interpretación 此网络研讨会有中文及英文两种放送版本
IllinoisRestaurants.org CookCountyIl.gov/Recovery
Para escuchar en español, use el botón Interpretación 此网络研讨会有中文及英文两种放送版本
CookCountySmallBusinessAssistance.com
Panelists
Eric Biltgen
Senior Manager
Plante Moran
Ginger Powell
Principal
Plante Moran
Stephen Eckert
Senior Manager
Plante Moran
Mark S. Feuer
Partner
Taft Law
Taxes, Finance, and Cash Flow Pandemic Toolbox
Lender Renegotiation
Landlord Renegotiation
SBA Federal Solutions
PPP One and Forgiveness
PPP Two Forgivable Debt
Shuttered Venue Operator Grant
Restaurant Revitalization Fund Grant
State and Local Loans and Grants
Federal Employee Retention Tax Credit
Taxes, Finance, and Cash Flow Pandemic Toolbox
Restaurant Revitalization Fund Grant
$28.6B Fund
$5B set aside for businesses that grossed less than $500,000 in receipts in 2019
1st three weeks prioritizes restaurants owned and operated by women, socially and economically disadvantaged small business concerns, and veterans
Publicly-traded and companies that own more than 20 restaurants are not eligible
Restaurant Revitalization Fund Grant
Up to $5M in grants available for individual restaurants, bars, caterers, breweries and tasting rooms
Up to $10M in grants available for restaurant groups
Grant is the amount of the “pandemic-related revenue loss”
SBA to make grants in the order which applications are received by the Administrator
Use of Funds: payroll, principal and interest on mortgage, rent, utilities, maintenance expenses, including costs of outdoor seating, supplies, food and beverage, covered supplier costs, operational expenses, paid sick leave
Restaurant Revitalization Fund Grant
Payroll Tax Enforcement
Avoid the temptation to use payroll tax for fund cash flow
Payroll taxes are “trust fund taxes”
Personal liability for failure to withhold, collect and pay over federal withholding and employee payroll taxes
Payroll Tax Enforcement
If possible, put company-level installment agreement in place – IRS will still pursue assessment of the trust fund recovery penalty but may not pursue immediate collection
Contest “responsible officer” and “willfulness” determinations through IRS Appeals
Can pursue litigation in U.S. District Court by paying minimal “divisible tax amount” and filing claim for refund of the minimal amount and abatement
If funds are available before enforcement, pay and designate payment for “employee portion” to reduce personal liability exposure
Payroll Tax Enforcement
Mark S. Feuer 40 North Main Street, Suite 1700
Dayton, Ohio 45423
(937) 641-1735
www.taftlaw.com
Contact Us - Taft Law
Plante Moran
Eric Biltgen
Senior Manager
Ginger Powell
Principal
Stephen Eckert
Senior Manager
How did we get here?
The CARES Act Initially created the ERC (among many COVID programs)
Effective dates: March 12, 2020 – Dec. 31, 2020
Consolidated Appropriations Act, 2021 (CAA) Modified and expanded the ERC
Some changes were retroactive; others were prospective
2021 credit was set to expire on June 30, 2021
American Rescue Plan Act Extended the 2021 credit through December 31, 2021
Created special rules for start-up businesses and those experiencing severe financial distress
Summary of ERC by year
2020 2021
Maximum amount of credit per employee
$5,000 per employee for the year (50% of $10,000 of qualified wages for the year)
$7,000 per employee for each quarter in 2021 ($28,000 total) (70% of $10,000 of qualified wages per quarter) Note: recovery start-up credit is further limited to $50,000 per quarter
Determination of employer eligibility (quarterly determination)
Either: (1) partial or full shutdown due to a government order; or (2) 50% or more gross receipts decline in that quarter (or a prior
quarter) as compared to the corresponding quarter from the prior year
Either: (1) partial or full shutdown due to a government order; (2) 20% or more gross receipts decline in that quarter (or the
prior quarter) as compared to the corresponding quarter from 2019; or
(3) Meets the recovery start-up business definition* (applicable to Q3 and Q4)
*Recovery start-up businesses are those that: • Began operations after February 15, 2020; • Had annualized gross receipts for the period ending with the
prior calendar quarter of $1.0 million or less; and • Does not meet the other eligibility tests.
Summary of ERC by year
2020 2021
Impact of PPP loans Retroactive update: Receipt of PPP loans does not disqualify a business, but expenses supporting loan forgiveness cannot be counted as qualified wages
Wage expenses supporting loan forgiveness cannot be counted as qualified wages
Determination of qualified wages
Eligible employers with 100 or fewer employees: all wages and healthcare costs paid to employees* Eligible employers with > 100 employees: only wages and healthcare costs paid to employees that are not providing services
Eligible employers with 500 or fewer employees: all wages and healthcare costs paid to employees* Eligible employers with > 500 employees: only wages and healthcare costs paid to employees that are not providing services Special rule: Employers suffering severe financial distress (> 90% gross receipts decline) may include wages paid to employees irrespective of employer size
Current guidance
So far, the IRS has issued two sets of guidance:
Notice 2021-20
Formal guidance with more substantive standards and safe harbors
Only applies to the 2020 credit and leaves some key questions unanswered
Frequently asked questions website
Provides helpful examples but few definitive answers
Has not been updated to account for recent legislation
We await further guidance for 2021 and specific issues.
Retention Credit – Key Issues
Must one business be aggregated with others?
Applicable rules look to common ownership and affiliated service groups
Aggregation impacts all other aspects of the credit
Is the business an eligible employer?
Quarterly determination based on two alternative tests
Gross receipts testing becomes even more critical as government restrictions are relaxed
What amount of qualified wages were paid per employee?
Different tests apply to smaller versus larger employers
Calculation is more permissive for the 2021 credit
How does the ERC coordinate with other programs?
Impact of PPP loan forgiveness
Coordination with income tax filing and other payroll credits
Aggregation considerations
Employee retention credit looks to:
IRC Sec. 52(a) and (b) tests Parent-subsidiary groups
Brother-sister groups
IRC Sec. 414(m) and (o): Affiliated service groups and anti-abuse rules
These same rules are utilized for other employee benefit plan situations
Commonly encountered situations:
Is there sufficient common ownership to create a brother-sister group among separate restaurants?
Have these rules been evaluated or are PPP aggregation rules being utilized?
Is a management company aggregated with a store?
Eligible employers
Commonly encountered situations: Has the government order sufficiently impacted operations to be considered a partial
shutdown? Will the relaxation of government orders impact the partial shutdown determination?
2020 2021
Either: (1) partial or full shutdown due to a government order; or (2) 50% or more gross receipts decline in that quarter (or a prior quarter) as
compared to the corresponding quarter from the prior year
Either: (1) partial or full shutdown due to a government order; (2) 20% or more gross receipts decline in that quarter (or the prior quarter) as
compared to the corresponding quarter from 2019; or (3) Meets the recovery start-up business definition* (applicable to Q3 and Q4) *Recovery start-up businesses are those that: • Began operations after February 15, 2020; • Had annualized gross receipts for the period ending with the prior calendar
quarter of $1.0 million or less; and • Does not meet the other eligibility tests.
Eligible employers – Notice 2021-20
More than nominal portion of business Applies to determine if the portion of the business that was shut down is more than nominal compared to the entire business
Can be tested in two, alternative ways:
Gross receipts from the shutdown portion of the business are greater than or equal to 10% of the total gross receipts in the same calendar
quarter in 2019, or
Hours of service performed by employees in the shutdown portion of the business was greater than or equal to 10% of the total hours of all
employees in the same quarter in 2019
More than nominal effect Applies to determine if the government order has imposed limitations that have more than a nominal effect on the business
Test: There has been a 10% or greater reduction in the ability of business to serve customers in the ordinary course of
business
What if the 10% thresholds are not satisfied?
Qualified wages The credit is based on the amount of qualified wages paid during employer eligibility
Different standards apply to employers that were above or below an employee threshold in 2019
2020 2021
Threshold: 100 employees in 2019 Threshold: 500 employees in 2019
Eligible employers with 100 or fewer employees: all wages and healthcare costs paid to employees
Eligible employers with 500 or fewer employees: all wages and healthcare costs paid to employees
Eligible employers with > 100 employees: only wages and healthcare costs paid to employees that are not providing services
Eligible employers with > 500 employees: only wages and healthcare costs paid to employees that are not providing services Special rule: Employers suffering severe financial distress (> 90% gross receipts decline) may include wages paid to employees irrespective of employer size
Full time employee count
Count full time employees in 2019 2019 is the measurement period for 2020 AND 2021 Not the same FTE calculation as used for PPP!
How to count? By month, count only employees who work on average:
30 hours of service per week, OR 130 hours/month
Take the sum of the number of full-time employees in each calendar month in 2019 and divide that number by 12
Start up considerations Started in 2019 — average of months open in 2019
Started in 2020 — average of months open in 2020
Filing considerations
2020 ERC must be claimed by filing 941X 941X is paper-filed return
Patience may be required for refunds
2021 ERC can be accessed in a few different ways Current quarter
Retain payroll tax deposits to start accessing cash now
Request “Advanced Refund” (Form 7200 — <500 employees only)
Request a refund on quarterly 941
Apply overpayment forward on quarterly 941
Prior quarter
941X
Income tax impact
ERC requires 280C(a) treatment for income taxes
Income tax wage deduction must be reduced by the amount of the credit
ERC “addback” must be made on income tax return including the quarter with the ERC
May require an amended 2020 income tax return if already filed
State income tax may be impacted
Extending the 2020 tax return is recommended where retroactive 2020 credits opportunities are being pursued.
PPP1 and ERC — Optimization The same wages cannot be counted for both ERC and PPP loan forgiveness
Strategy to optimize PPP and ERC
Identify qualified ERC wages outside covered period
Determine “excess PPP payroll” in the covered period
Identify qualified ERC Wages inside the covered period
Analyze wages in the covered period
Clarifications from Notice 2021-20
Wages included on a PPP forgiveness application that support loan forgiveness are excluded from ERC
Guidance does not describe a process for amending forgiveness application to add other qualified expenditures
2021 PPP2 and ERC strategies
To maximize benefit between PPP2 and ERC, strategy is important
Understand which quarters will qualify for ERC
Consider delaying PPP2 disbursement to late in Q1 2021
Extend covered period to the full 24 weeks
Maximize non-payroll PPP expenses
Consider some expenses eligible for ERC and not PPP
Wages of >100,000 annualized
Employee portion of health insurance
Other tax planning
Revisit recent tax changes for 2020 reporting
Modified rules create new opportunities
Additional deductions may be available (qualified improvement property; business
interest expense)
Loss limitation rules return in 2021
Resources
Plante Moran Retention Credit Resources
Resource center
Recent webinar
Taking advantage of the employee retention credit
Comparison of COVID-19 employer tax incentives
Evaluating 2020 opportunities
Evaluating 2021 opportunities
Ginger Powell Principal, Tax Solutions Group 847-628-8812
Eric Biltgen Senior manager, Tax Services 312-928-5207 [email protected]
Stephen Eckert Senior manager, National Tax Office 312-602-3653 [email protected]
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