Part 5 -- U.S. 2020 Economic Conditions, the Pandemic, and Where We Are at the Beginning of June 2020

This is the fifth in a series of posts focusing on year-to-date economic conditions in light of the impact of the COVID-19 pandemic and continuing government economic recovery legislation. See the first post, second, third, and fourth.

2. Potential U.S. – Asia and International Trade Concerns

 On May 28 and with broad global economic implications, China approved a draft decision for new national security legislation that would impose on freedoms in Hong Kong, in a move that would encroach on the autonomy of the region and jeopardize its special trade status with the U.S. This came against a backdrop of other issues chipping at the relations between the two countries, with the U.S. in disagreement with China for its handling of the coronavirus pandemic, and with Washington moving to pass legislation that would delist some Chinese corporations from U.S. exchanges. Events continue to develop.

3. Economic Stimulus and Federal Legislation in March 2020 and Beyond: The CARES Act and the Small Business Administration Paycheck Protection Program (SBA PPP)

For small business owners hit hard by the COVID-19 Pandemic, as of June 1 the CARES Act still has funds available after the second round of financial relief, and offers several SBA programs to offset the negative economic impact. Two programs that have been in the news are the Payment Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). These loans also benefit the self-employed. As of May 28, the additional funds include $310 billion to fund the Paycheck Protection Program (PPP) and an additional $60 billion to fund Economic Injury Disaster Loans (EIDL).

The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), also known as the CARES Act, is a law intended to address the economic fallout of the COVID-19 pandemic in the United States. The original bill proposal included $500 billion in direct payments to Americans, $208 billion in loans to major industry, and $300 billion in Small Business Administration loans.  The bill grew to $2 trillion in economic aid as passed by the Senate and the House and signed into law on March 27.

Unprecedented in size and scope, the legislation was the largest-ever economic stimulus package in U.S. history, amounting to 10% of total U.S. gross domestic product. The bill was much larger than the $831 billion stimulus act passed in 2009 as part of the response to the Great Recession. The Congressional Budget Office estimated it would add $1.8 trillion to the deficits over the 2020–2030 period, with nearly all the impact in 2020 and 2021.

The bill is referred to by lawmakers as "Phase 3" of Congress's coronavirus response. The first phase "was an $8.3 billion bill spurring coronavirus vaccine research and development" (the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020), which was signed into law on March 6, 2020. The second phase was "an approximately $104 billion package largely focused on paid sick leave and unemployment benefits for workers and families" (the Families First Coronavirus Response Act), which had been enacted March 18, 2020.

4. Ongoing Continuing Taxpayer Assistance by the Internal Revenue Service

Since March 2020, the IRS also remains responsive in providing questions and answers regarding available tax relief as assistance to individuals and corporate taxpayers. For corporations, net operating loss carrybacks of C corporations are allowed to taxable years in which the alternative minimum tax applies. On May 12, the IRS announced tax relief through increased flexibility in IRC Sec. 125 cafeteria plans. Notice 2020-29 provides guidance on mid-year guidance under an IRC Sec. 125 cafeteria plan during calendar year 2020 related to employer-sponsored health coverage, health Flexible Spending Arrangements (health FSAs), and dependent care assistance programs. Notice 2020-33 increases the $500 limit for unused amounts remaining in a health FSA that may be carried over into the following year by making the carryover amount 20% percent of the maximum salary reduction amount under IRC Sec. 125(i), which is indexed for inflation.

Three new credits are available to many businesses hit by COVID-19: the employee retention, paid sick leave, and family leave credits. On May 7, the IRS published more information and FAQs on these.

On April 17, the IRS posted new FAQs regarding COVID-19-related tax credits for required paid leave (sick and family) provided by small and midsize businesses.

On May 4, the IRS released FAQs on the CARES Act relief for special distribution options and rollover rules for retirement plans and IRAs. The FAQs also cover the expanded permissible loans from certain retirement plans.

The IRS provides guidance under the CARES Act to taxpayers with net operating losses. See more here. These FAQs apply to taxpayers with net operating losses and IRC Sec. 965 inclusions.

Rev. Proc. 2020-23 allows eligible partnerships to file amended partnership returns for tax years beginning in 2018 and 2019 to take advantage of CARES Act relief.

Rev. Proc. 2020-25 allows taxpayers to change their depreciation under sec. 168 for qualified improved property placed into service after December 31, 2017, for tax years ending in 2018, 2019, or 2020 per provisions of the CARES Act.

The IRS coronavirus webpage has ongoing updates on important small business topics.

Tax Relief for Businesses and Tax-Exempt Entities Tax Relief and Economic Impact Payments