Just as in any significant business transition, reopening a business after a closure due to the coronavirus raises many federal income tax issues, but this situation also raises unique risks and opportunities.
During this time, many businesses will be seeking relief from their business partners, such as banks and landlords, to help get through the cash flow crunch created by the shutdown. When reworking the economic terms of these business relationships, potential tax traps for the unwary could arise and undermine the expected relief. Even if a business’s obligations are not fully forgiven, significant changes can create taxable income.
The CARES Act provided a welcome exclusion from this potential pitfall for borrowers receiving loan forgiveness under the Paycheck Protection Program, but borrowers need a detailed plan to maximize the benefit of this provision and prepare the supporting documentation.
The CARES Act includes a number of special provisions targeted at helping businesses get back on their feet, providing the opportunity for businesses to claim losses and request refunds of prior year taxes in certain situations. Businesses can also defer the payments of taxes in some situations. However, businesses need to act quickly to act quickly to maximize the cash flow benefits of this limited-time tax relief, which generally expires at the end of 2020.
The tax attorneys of McDonald Hopkins are key members of the interdisciplinary team that helps our clients navigate these challenges and achieve their business goals tax-efficiently. We have also developed a tool to assist our clients with the process of receiving loan forgiveness under the Paycheck Protection Plan, working closely with our SBA lending attorneys to protect our clients' interests.