Restaurant Revitalization Fund (RRF)

The American Rescue Act, passed on March 10, 2021, includes $28.6 billion in direct aid for the restaurant industry to be distributed by the US Small Business Association (SBA). Eligible businesses can receive a tax-free federal grant equal to its Pandemic Related Revenue Loss. These grants do not need to be repaid.

1. Who is eligible?

Any restaurant or similar business[1] who owned or operated 20 or fewer establishments (together with any affiliates[2]) as of March 13, 2020. Publicly-traded companies are ineligible, as are any applicants with a pending application for a Shuttered Venue Operators Grant (Section 324 of the Economic Aid Act).

2. How is the Pandemic Related Revenue Loss (grant) amount determined?

The amount of grant to be received by the restaurant is calculated by subtracting its 2020 gross receipts from its 2019 gross receipts, less any Paycheck Protection Program (PPP) first and second draw loan amounts. The grant is capped at $10 million per business and limited to $5 million per physical location.

If the restaurant was not in business for the entirety of 2019, the difference in 2019 and 2020 gross receipts is calculated based on the average monthly gross receipts during 2019 times 12, less any PPP loan amounts:

There are additional pandemic-related revenue loss calculations for instances in which the restaurant was not in business until 2020.

3. What expenses can a business spend the Restaurant Revitalization Funds on?

Funds can be spent on payroll, principal, or interest on any mortgage obligation (not including prepayments), rent, utilities, maintenance including construction to accommodate outdoor seating, supplies including protective equipment and cleaning materials, food and beverage expenses, covered supplier costs, operational expenses, paid sick leave, and any other expenses that the SBA determines to be essential to maintaining operations.

4. How long does the business have to spend the funds?

A business can use the funds during the covered period, defined for the RRF as the period between February 15, 2020, through December 31, 2021. The SBA has the ability to extend this date range for up to two years. If all grant funds are not spent by the business, or the business permanently closes before the end of the covered period, the business must return any unused funds to the Treasury.

5. What is the tax treatment for the business receiving the RRF grants?

The grants will not be taxable income, and the business will keep the federal tax deductions for the relevant expenses used with grant monies.

6. How will the grant funds be distributed?

For the first 21-days of grant distribution, the SBA shall prioritize awarding eligible entities with small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns. After this period, funds will be disbursed on a first-come, first-serve basis.

7. What are the next steps?

As of the date of this posting, we do not know when the SBA will begin disbursing funds or how the rollout of fund disbursements will work. The US Chamber of Commerce recommends restaurant owners that want to apply for RRF grants immediately register with the government using the System of Award Management (SAM). To register for the SAM, restaurant owners need to do the following:

• Register for a free Data Universal Numbering System (D-U-N-S Number) at: https://www.dnb.com/duns-number/get-a-duns.html
• Register for a free System for Award Management (SAM Number) at: https://sam.gov/SAM/

We understand that interested parties will need to be registered on the SAM system prior to receiving the RRF grant. The other thing interested restaurant owners can do at this point is to begin preparing the relevant paperwork demonstrating the gross receipts in 2020 and 2019 and PPP1 and PPP2 loan amounts (if received). Please contact us or your Lutz Representative with questions.

[1] Includes any restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility, or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.

[2] Affiliation measured by greater than or equal to 50% of equity or right to profit distributions or contractual authority to control the relevant businesses.

NEW STIMULUS PACKAGE SIGNED INTO LAW

President Biden signed the American Rescue Plan Act last week, which is the third major piece of legislation targeting the COVID-19 pandemic. It contains several tax provisions that impact businesses and individuals.

Business updates

FFCRA credits extended

Paid sick and family leave credits are now extended through September 30, 2021. The program continues to be voluntary in 2021, however, the 80-hour limitation on paid sick leave hours resets on April 1, 2021. For purposes of the family leave credit, eligible wages increased to $12,000 from $10,000.

Employee retention credit (ERC) extended

The ERC is now extended through December 31, 2021. This credit can be substantial for employers who qualify. In 2021, a business may qualify if it either (1) demonstrates at least a 20% decline in a 2021 calendar quarter gross receipts compared to the same calendar quarter in 2019; or (2) experiences a business shutdown mandated by a government authority.

Recovery startup businesses, those that began after February 15, 2020 and had less than $1 million in gross receipts, could be eligible for an expanded credit of up to $50,000 per quarter for the third and fourth quarters of 2021.

Restaurant Revitalization Grants

The Small Business Administration has a new program specific to restaurants which aims to offset a “pandemic-related revenue loss” in 2020. Guidance is needed from the SBA to detail how this program operates.

Individual updates

Unemployment benefits tax-free

For taxpayers with less than $150,000 in 2020 adjusted gross income (AGI), the first $10,200 of 2020 unemployment benefits are tax-free.

Stimulus checks

A new round of stimulus checks provides up to $1,400 per individual, including college students and qualifying relatives. Phase-outs are modified: $75,000 to $80,000 for single filers; $112,500 to $120,000 for head of household; and $150,000 to $160,000 for married filing jointly.

The IRS will issue checks based on 2019 filings unless the 2020 return has already been filed.

Child Tax Credit expanded

The 2021 credit is increased to $3,000 per child ($3,600 for six years or younger), subject to phase-out limitations. An advance on the credit will be available with IRS guidance coming.

Please contact us if you have questions and continue to follow our updates as further guidance is released.

five ways coronavirus impacts your 2020 personal taxes

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paycheck protection program updates

The Consolidated Appropriations Act (CAA) passed at the end of December 2020 contained language reopening the Paycheck Protection Program (PPP) for First Draw Loans and creating the PPP for Second Draw Loans. The below listing presents a summary of the major points of each program.

PPP First Draw (PPP1):

• Opened back up for first-time borrowers
• Flexible covered period allowed (time period between 8 and 24 weeks)
• One page forgiveness application for PPP loans <$150K (has not been released)
• Payroll expanded to include company paid disability, vision and dental
• EIDL Advance/Grant not deducted from forgiveness amount
• Additional eligible uses of loan proceeds include worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations

PPP Second Draw (PPP2):

General Information

• Available until March 31, 2021
• 5-year forgivable loan @ 1%
• Flexible covered period allowed (time period between 8 and 24 weeks)

Eligibility Criteria

• PPP1 funds must be spent by PPP2 disbursement date
• For NAICS #72 businesses (such as hotels and restaurants) with multiple locations, the borrower must have less than 300 employees per physical location
  • affiliation rules still apply, but it appears that the alternative size standards and net income/book value test no longer apply)
  • For businesses with multiple locations, not more than 300 employees per physical location
• Borrower must show a 25% “gross receipts” reduction in any 2020 calendar quarter, compared to the same quarter in 2019
  • Borrower can also compare full year 2020 vs. 2019 for 25% “gross receipts” reduction
  • Comparison periods will differ for borrowers who were not in operation for entire 2019 year
  • “Gross receipts” include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
    • PPP1 forgiveness amount and EIDL is excluded from the “gross receipts” reduction test
    • No guidance has been released on Provider Relief Funds being includable as “gross receipts” during 2020
  • Method of accounting (cash or accrual) for “gross receipts” reduction test should follow method used on tax returns

Loan Amount

• Maximum loan amount of $2 million
• Loan amount equal to 2019 or 2020 average monthly payroll x 2.5 (or x 3.5 for NAICS code 72 such as restaurants and hotels)
• Schedule F: Loan based on 2.5x average monthly gross income (max of $100K gross income)
  • If a borrower has employees: sum of (i) the difference between gross income and employee payroll costs of the borrower in 2019 or 2020, that is not more than $100,000 divided by 12, and (ii) the average total monthly payroll costs for the employees incurred or paid during the same year elected by the borrower x 2.5 (max loan amount of $2 million)
• Schedule C: Based on 2.5x average monthly net self-employment income (not to exceed $100K)
• Loan to a single corporate group cannot exceed $4 million
  • Majority owned, directly or indirectly, by a common parent

 PPP2 Documentation

• No additional documentation to substantiate payroll costs will be required if:
  • Used calendar year 2019 payroll figures to determine PPP1 and PPP2 loans amounts, and
  • The lender is the same
• For loans over $150,000, submit documentation on “gross receipts” decline such as:
  • Relevant tax forms, including annual tax forms, or if relevant tax forms are not available, quarterly financial statements or bank statements
• For loans of $150,000 or less, documentation is not required to be submitted with the loan application but must be submitted on or before the date the borrower applies for loan forgiveness. However, we assume most lenders will require “gross receipts” documentation when applying for PP2 since the “gross receipts” comparison will need to be completed to determine eligibility

If you have any questions on your eligibility for PPP1, PPP2, or the forgiveness of either program, please reach out to:

Mark Otte

motte@lutz.us

(402) 827-2032