Tax Aspects of the Stimulus Package

Tax Aspects of the Stimulus Package

Last week a historic event took place in the U.S.:  a $2 trillion coronavirus (COVID-19) stimulus package was enacted into law.  President Donald Trump signed the relief bundle on March 27, 2020 and citizens are now scrambling to understand how they may seek help in what could become a severe national recession

The stimulus package is completely new territory due to the many economic issues that the COVID-19 pandemic has hurled onto the public and which significantly affect businesses, industries, individuals, and families.  Quarantines and other restrictions have made it hard to pursue business as usual practices and the lawmakers on the federal level had urgency in mind when they wrote and passed the stimulus package.  

Assistance for Individuals & CARES Act

Distressed businesses and individual tax filers have a few programs enacted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that are of high interest.   For individuals, the Treasury Department and the Internal Revenue Service will soon begin distributions which will be known as stimulus payments, and these will be available through the rest of 2020.  Those who do not typically file a tax return, such as some seniors, some individuals with disabilities, or lower income people, would need to file a simple tax return for the distribution; otherwise for the rest of the population payment will be automatic based on info from their 2018 or 2019 tax return.  

Bear in mind, there are eligibility thresholds for the economic impact payments.  Namely, tax filers with adjusted gross income up to $75,000 for individuals ($150,000 for married couples filing jointly) will receive the full payment of $1200 ($2400 for married couples).  Parents also receive $500 for each qualifying child. However, for filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds.  Single filers with income exceeding $99,000 and joint filers exceeding $198,000 are not eligible.

Business Aid & the CARES Act

For any business, private nonprofit, or public nonprofit organization with under 500 employees there are small business loans available through the Small Business Administration (SBA) to provide relief for interruption of operations.  Through the end of 2020, borrowers can receive emergency loans equal to 2.5 times their monthly payroll, mortgage, rent, and debt payment expense, up to $10 million and use these loans for a broad range of business expenses, payroll, paid sick leave, mortgage, rent, utilities, and payments on existing debts. For those businesses that have existing SBA loans, the payments may be deferred for 6 months.  The CARES Act also allows temporary changes making the Chapter 11 bankruptcy process more reachable and streamlined for smaller businesses.

IRS & the People First Initiative

The Internal Revenue Service has taken steps to scale back some of its typical operations in order to ease practices for taxpayers during the COVID-19 pandemic.  It is also important to note that the IRS phones lines are down at this time. Some standard procedures that will be temporarily put on hold are passport certifications to the State Department for seriously delinquent taxpayers, private debt collection reporting, and generally new audits will not commence for the remainder of the year.  In addition, among other operational changes are:

  • Installment agreements:  the agency is suspending payments due on existing installment agreements from April 1 to July 15, however interest continues to accrue on the balance. New installment agreements for people will continue to be available.
  • Offers in compromise (OICs):  the agency is extending a number of deadlines related to OICs. Taxpayers have until July 15 to provide additional information the IRS has requested to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer’s consent.  Taxpayers can suspend all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances. The IRS also will not default an OIC for taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return, as well as their 2019 return, on or before July 15, 2020.
  • Field collection activities:  the agency will suspend any liens and levies initiated by field revenue officers during this period. Field revenue officers will continue to pursue high-income nonfilers and may perform other similar activities. However, automatic system liens and levies will be suspended.

Final Thoughts

The CARES Act is a complicated economic bill containing $2 trillion of appropriation assistance.  Our team of CPAs and attorneys at Dallo Law Group has pulled together our accumulated experience and expertise to assist our clients in traversing the various IRS and federal relief programs related to the bill.  There is no sense to getting through these tough times alone and without taking full advantage of what is available to you.  

Industries that have been severely impacted the most in the midst of the COVID-19 pandemic, include air transportation, health care, education, and especially small businesses across the nation.  The federal government knows the economic hardship is real, and time is of the essence. Give us a call at 619-795-8000 to schedule a free initial consultation to learn how the CARES Act and IRS initiatives can help you during this difficult time.