The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law March 27, 2020, to provide economic relief for American taxpayers and businesses who are struggling during the fight against the COVID-19 pandemic. Julio Gonzalez, CEO and founder of Engineered Tax Services, joins us to discuss the goals of the legislation, its impact on tax professionals, and steps small businesses can take to leverage its benefits in these distressing times.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

The Coronavirus Aid, Relief, and Economic Security, or CARES, Act was signed into law on March 27th, 2020, to help provide economic relief for American citizens and businesses affected by the COVID-19 pandemic. Since then, the law has continued to take shape and those affected by its content are fighting to make sense of it, and discover how it can help them in a distressing time. To help us decipher the act and its effect on several specific parties, as well as the public in general, we're joined by Julio Gonzalez, CEO and founder of Engineered Tax Services Inc.

Before we get into some of the details on the CARES Act, can you let us know some of the reasons, as perhaps obvious as they may be, but some of the reasons why sweeping legislation like this was necessary in this case?

[Gonzalez] I think the sweeping legislation was just vital to give small businesses a chance, to get some cash infusion for them, to give some leeway on the taxes, and ultimately allow them to stabilize for a couple of months, and hopefully get this virus behind us, or get back into a place where we can get back to work.

What is your overall opinion of how effectively this legislation is designed to address economic concerns, at least on paper?

[Gonzalez] At least on paper, I think nothing in D.C. is easy to get passed. You have the House debating the Senate, and to ultimately get something through that gives individuals a paycheck, or some businesses some extra cash through the loan process, and the ability to go back and amend some tax returns with some change in the tax law. I think ultimately those are all good things for a short period of time, so I'm optimistic that these things can help the businesses in the short term. I'm somewhat optimistic that these things got done, in D.C. It's hard to get legislation done up there.

You obviously work in tax services, so how do you see the CARES Act affecting the work of CPA tax professionals?

[Gonzalez] My goodness, I think the work for CPA professionals has never been more difficult. I mean, think about this, the CPA community just came up to speed with the new tax laws from 2017, 1,000 pages of new tax laws, and new software updates that they have to use and waiting on guidance, waiting from the IRS and Treasury, to give some more official instructions on the new tax law. Then, all of a sudden, we have another 900 pages of new tax law, and the software is not going to be up to date for these CPA firms. Their employees are now working from home because of the virus, and dealing with the children. So, you think about it now, and now they have to the 17th to get these tax returns done.

But the tax law also changed how corporations file their tax returns, and it goes backwards. Now they're probably going to have to go back and amend a lot of the 2019 business tax returns they did, and then use that to go and do the individual tax returns. It's so daunting for the CPA community.

Let’s drill down into some specific parties here. What are the benefits of the bill, from the perspective of real estate and real estate investors?

[Gonzalez] Big bonus for them, because the biggest change to this new tax law change is the way we depreciate qualified improvement property, which has always been a technical correction that never got technically corrected. So now, that got updated in this bill, and basically for the real estate community, they're not able to go back to these qualified improvement properties that were being depreciated over 39 years, and basically go back and immediately expense them for 2019, going back to September 2017. That's big, because that basically will allow them more write-offs, and ultimately, potentially, more losses. It also changed the interest deduction that they're allowed to take from 30 to 50 percent.

So now, we're generating more write-offs from qualified improvement property, the interest deductions going up, and what happened with that, for the real estate community, is that these generate more losses. In the previous tax law, we were capped at $500,000 in loss for the first year. They removed that cap, and then they also allow us now to take these losses and go back and amend previous tax returns to get refunds which, under the previous tax code, we can go back and carry back losses.

All these things are dramatic improvements for the real estate industry. You see the real estate industry, right now, going through with their CPA firms. We've got to redo the corporation tax return for 2019, we've got to put qualified improvement property into immediate expenses, we've got to change the interest expense that we took from 30 to 50 percent. Did that create a loss, a bigger loss? Remove the cap of $500,000. Now, should we go back and amend tax returns? I mean, dramatic, dramatic changes for the real estate industry, all very positive.

One of the major things this legislation had to do was soothe the pain being felt by small businesses who are, obviously, getting crushed by coronavirus. Did it accomplish this goal? I know it'll take some time to see that. But, on paper did it accomplish the goal? If so, how?

[Gonzalez] I think the most important things were these SBA funding programs. We have the 7A program, that allow small businesses to get up to $2 million in working capital,to help get through this. That working capital has a term of 30 years, with an interest rate of three and 3.75 percent. That was step one, and with that program comes an immediate $10,000 grant that comes with that program. That became available last Monday online. I highly recommend every business go through that application process on the SBA.gov website. It takes, relatively, 15 minutes. Really, what you need to do to get through that is have your tax return in front of you. So, that was step number one.

Number two in the big program is that SBA Paycheck Protection Program. Really, the benefits there are that this is all for payroll, right?

So, you can borrow up to two and a half times your monthly average payroll. Really, these funds are to get through a few month's payroll, rent, mortgages, utilities. And to the extent that that's what the payments are used for, that amount of the loan is forgiven. The rest of the loan would be, really, expensed over two years, but those payments don't start for another six months. The interest rate is under 1%.

I think those two things give all these business owners hope, to the extent that they can get online, get with their banks, and get through the process.

We talk about the goals that we're looking to accomplish with this. All in all, what is the end goal here? What is the end result we need to see over the next few months, or next few years even, to judge whether this legislation has been successful?

[Gonzalez] The ultimate measure is going to be how much money is going back to Treasury, to the IRS, in terms of tax collections. So, if we're successful, we'll see this investment that, basically, the government is putting into the small businesses pay off by the businesses coming back quickly and having that pay back come back.

Look, they're basically helping us get short-term capital, help with the payroll. Ultimately, this doesn't matter if we don't get back to work, right? We've got to get back to work, we've got to get through this virus issue. Steve Moore, one of the top economists, said "If we're not back to work by May 1st, some of these businesses just won't recover, even with these types of programs."

So, I appreciate that you're getting this information out to the audience, which is so timely, and so important.