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The CARES Act Primer – An Introduction to the Largest Emergency Relief Package in US History*

By Grant C. Sittig & John P. Martin | Categories: Articles, Business, COVID-19 task force, Real Estate & FinancePrint PDF April 2020

On Friday, March 27, 2020, President Trump signed the $2.2 trillion emergency stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law.  This comes after two previous bills were signed into law to assist with the fight against the novel COVID-19 virus and to protect the US economy from the impacts of the virus. The CARES Act’s main focus is on appropriating funds to assist in the fight against the virus, including appropriating funds to assist American businesses and individuals weather the storm. This is a brief summary of some of the major provisions that will assist businesses and individuals during this time. A summary of the CARES Act prepared by the Senate Staff can be found here, and the full text of the CARES Act can be found here. This article provides a high-level summary of some of the major provisions of the CARES Act, and Johnson Pope will continue to produce content in the future that focuses on those specific portions of the CARES Act that impact our clients.

Small Business Loan Programs 

Paycheck Protection Program

The first Section of the CARES Act serves to assist primarily small business to stay in business and continue to pay their workers. One of the major programs created was the Paycheck Protection Program.  We will provide a brief summary here, but for a more detailed look at this program, please refer to the linked article here.  The Paycheck Protection Program was added to the Small Business Act, allowing the Small Business Administration to provide loans to certain businesses, 100% guaranteed by the US Government. The loans will be made through approved SBA lenders, with a mechanism for banks to become eligible lenders for the Paycheck Protection Program. There are a number of entities that are eligible: small businesses, nonprofits, veteran’s organizations or Tribal business concerns with no more than 500 employees, which amount may exceed 500 if allowed by the Small Business Act for that specific industry. Sole proprietors, independent contractors and self-employed individuals are also eligible for a covered loan. If a business has more than one physical location and each location has less than 500 employees, the business shall be eligible for a covered loan. This will assist businesses, such as restaurants and accommodation businesses, that have more than 500 total employees across multiple locations. The covered period for the loans is from February 15, 2020 through June 30, 2020. 

The CARES Act provides a formula for determining the amount of the loan pursuant to the Paycheck Protection Program based on the amount of payroll for the company, which loan amount shall not exceed $10,000,000. The company can use the loan for payroll costs (including salaries and sick or medical leave), insurance premiums, utilities, mortgage payments, and rent. These uses are the approved uses that can result in the amount of the loan being forgiven by the SBA. Any amount not forgiven shall have a maturity date that will not exceed 10 years and the interest rate shall be no more than 4%. The interest payments on the loan are deferred for a period of at least 6 months and up to a year.  

Loan Forgiveness

Section 1106 of the CARES Act provides for the forgiveness of loans provided by the Paycheck Protection Program. The borrower is eligible for loan forgiveness in an amount equal to the amount spent by the company over an 8-week period after the origination date of the loan, if the loan proceeds are used for the following purposes:

  • Payroll costs.
  • Payments of interest on a covered mortgage obligation.
  • Payments on a covered rent obligation.
  • Payments on covered utility payments.

The amount forgiven cannot exceed the principal balance of the loan. For expenses relating to payroll, compensation to an employee cannot exceed $100,000. The amount of forgiveness for such loan will be reduced by any reduction in employees compared to the prior year and the reduction in pay to any employees beyond 25% of such employees’ pay in the prior year.  For each worker laid off due to the impacts of the novel COVID-19 virus but rehired, the employer shall not be penalized for reducing the employer’s payroll at the beginning of the period if the worker is rehired within the time provided. For restaurants or other industries where workers are paid based on a tip rate, the loan forgiveness for payroll can include increased payments to tipped workers. Any loan forgiveness shall not be included in the employer’s income as cancellation of indebtedness income under the Internal Revenue Code. To obtain the loan forgiveness, there are submission requirements provided in the CARES Act. The loan forgiveness amount, plus any interest thereon, shall be paid by the Small Business Administrator to the lender within 90 days of the loan forgiveness.

The provision of the described loans and the potential for forgiveness of said loans by the US Government creates much needed liquidity for small businesses, especially if such loans are forgiven because the loans are used for the uses described above.  The exclusion from income tax of such loan forgiveness is a great help to small businesses, who will not have to set aside money received in these loans or from other sources to pay the tax bill.

EIDL Loans

Section 1110 of the CARES Act provides for Emergency Economic Injury Disaster Loans (“EIDL”) grants. The eligibility for EIDLs includes a business with not more than 500 employees, Tribal businesses, cooperatives, any individual sole proprietor, which may or may not have employees, an independent contractor, a private non-profit, or an employee stock ownership plan with not more than 500 employees for the period from January 31, 2020 through December 31, 2020. The applicant must have been in business as of January 31, 2020. An applicant for an EIDL loan can request an advance of up to $10,000 to be paid by the SBA within 3 days. The advance does not have to be repaid, even if the applicant is denied an EIDL loan. The advance shall be used for paid sick leave, payroll, rent, mortgage payments, increased costs of materials and other certain obligations. If a borrower receives the advance and then transfers to the Paycheck Protection Program rather than obtaining an EIDL loan following application and the receipt of the advance, the advance shall be treated as a reduction in the amount received on the loan under the Paycheck Protection Program. The SBA is waiving certain requirements relating to the EIDL loans and EIDL loans can be approved based solely on the credit score of the applicant or an alternative method to determine repayment ability. 

SBA Loan Subsidies

Section 1112 of the CARES Act provides for subsidies by the SBA for certain loan payments.  The covered loans are existing Section 7(a), 504, or micro loans, but does not include the Paycheck Protection Program loans. The SBA shall pay the principal, interest, and fees owed on the covered loans for 6 months starting with the first payment due.  The SBA will make payments no later than 30 days after the due date for the first payment, including for loans sold on the secondary market. 

Loans Conclusion

For any business, the decision of which program to use is a very important decision. If a business decides to utilize one of the programs, the business may be locked out of obtaining any benefits from the other programs. For example, as will be further described below, the use of a Paycheck Protection Program loan could prevent a business from obtaining the credit against employment taxes for wages paid.  If a business is trying to decide which program is most beneficial, please call one of our attorneys to discuss the options available under the CARES Act.

Other Business and Tax Provisions


There were some changes to the US Bankruptcy Code in the CARES Act. The eligibility threshold for filing under Subchapter V of Chapter 11 of the US Bankruptcy Code was increased to businesses having less than $7,500,000 of debt, which provision shall apply for one year. The definition of income for Chapters 7 and 13 excludes payments received from the US Government if the payments relate to the novel COVID-19 virus, which provision shall also apply for one year.


The CARES Act provides a number of changes to paid and sick leave:

  • An employer shall not be required to pay more than $200 per day or $10,000 total to each employee for paid leave.
  • The limitation for sick leave is equal to $511 per day or $5,110 in total to an employee. 
  • Provides $200 per day and $2,000 total to an employee for leave to provide care to a quarantined individual or child. 
  • An employee who was laid off on March 1, 2020 or later will have access to paid family and medical leave if rehired, provided certain requirements are met.  
  • Payroll credits for required paid sick leave and required paid family leave shall be refunded in advance to attempt to create liquidity for the companies.  The failure to make certain deposits in anticipation of the credit provided will not have any penalties.
Fringe Benefits

An employer can make a contribution towards an employee’s student loans or other educational assistance of up to $5,250. The payment needs to be made between March 27, 2020 and January 1, 2021. This amount is excluded from the income of the employee.

Charitable Contributions

Following the Tax Cuts and Jobs Act, the number of individual taxpayers who itemize deductions decreased, due in part to the increase of the standard deduction.  One of the deductions that is not available when a taxpayer is using the standard deduction is the deduction for charitable contributions. The CARES Act adds an above-the-line deduction for individuals for qualified charitable contributions in 2020 of up to $300. This deduction applies to individuals who do not itemize deductions on their 2020 tax returns.

For taxable year 2020, the 50% limitation on the deduction of charitable contributions for individuals who itemize deductions does not apply for taxable year 2020. 

Typically, corporations are only allowed to deduct charitable contributions up to 10% of the corporation’s taxable income.  This limitation has been increased to 25% for taxable year 2020.  Also, the limitation for the contribution of food inventory has been increased from 15% to 25% for taxable year 2020.

Credit for Wages Paid

The CARES Act provides a refundable credit to employers against employment taxes equal to 50% of qualified wages for each employee for the calendar quarter at issue during the time of the novel COVID-19 virus. The amount of qualified wages with respect to an individual employee for all calendar quarters shall not exceed $10,000, and only applies for the period from March 13, 2020 to December 31, 2020. An eligible employer is an employer that was carrying on a trade or business during calendar year 2020, during any calendar quarter the operation of such trade or business was fully or partially suspended during the calendar quarter by a government entity for the novel COVID-19 virus, and the gross receipts for the calendar quarter have decreased by more than 50% compared to the same calendar quarter in the previous year. The credit is based on qualified wages paid to an employee, which is measured differently depending on how many full-time employees the employer has.  If there are 100 or fewer full-time employees, all employee wages are eligible for the credit. If there are more than 100 employees, the qualified wages are only those paid to employees when they are unable to work due to the novel COVID-19 virus. 

The credit is not available to any employer who receives a loan pursuant to the Paycheck Protection Program. This will thus require a determination of which provision will be most beneficial to the company.  Please contact one of our attorneys to discuss your options and answer any questions you may have.

Deferral of Social Security Payroll Taxes

Another benefit for employers to attempt to create liquidity is the deferral of Social Security payroll taxes. Employers and self-employed individuals can defer the payment of the employer portion of the Social Security payroll taxes that the employers pay on behalf of their employees. This deferral will be paid by the employers over the next two years, half in 2021 and half in 2022.

NOLs, Interest, Corporate AMT Credits and other Tax Items

The rules regarding net operating losses (“NOLs”) were also changed in the CARES Act. Any NOLs incurred in taxable years 2018, 2019 and 2020 can now be carried back for a period of five years. These NOLs can also be used to fully offset income by removing a limitation relating to taxable income.  There are also special NOL rules relating to REITs provided in the CARES Act. Companies will be able to carry the losses back and amend prior returns to obtain cash refunds which will provide cash and liquidity to utilize in the company’s operations, including to pay rent, other fixed costs and their employees.

Section 2304 of the CARES Act is a provision that modifies the limitation of losses for taxpayers other than corporations, which is a benefit that will likely be very important for real estate investors.  The cap on loss limitation of $500,000 was removed, which allows investors to use losses from activities such as real estate to offset income from other sources, including gains from the sale of stocks held for investment.  It also lifts the cap for the previous two years.  By removing the cap, this provides a large tax break that can be utilized to access cash flow and liquidity.

Some other tax benefits in the CARES Act include:

  • Accelerates the ability to recover any corporate Alternative Minimum Tax credits by claiming the refund now, which, as with many of the business provisions in the CARES Act, is designed to provide liquidity during this time.
  • Increases the limitation of deduction of business interest from 30% to 50% of taxable income for 2019 and 2020.  
  • Allows the write off of certain improvement costs immediately rather than capitalizing the costs with the building and deducting over a 39-year period. 
  • Waives the excise tax on distilled spirits if used to produce hand sanitizer.  

Health Care and Education

There are a number of provisions that affect very specific areas of the health care and education industry, including provisions surrounding Medicare, that are beyond the scope of this CARES Act Primer. If you have any questions regarding these health care or education provisions, please call one of our attorneys who can assist with any questions regarding these provisions.

Coronavirus Economic Stabilization

Emergency Relief and Taxpayer Protections

Title IV of Division A of the CARES Act, or better known as the Coronavirus Economic Stabilization Act of 2020 (“Title IV”), provides regulatory relief to depository institutions, and their holding companies and affiliates, to enable them to meet the financial needs of households and businesses. Except for troubled debt restructurings, each provision is effective upon enactment of the Act, as appropriate, and terminates upon the earlier of the termination date of the public health emergency or December 31, 2020. This section also provides assistance to distressed sectors of the economy, and eligible businesses, for emergency relief through federal loans and loan guarantees. It is to be noted that the loans and loan guarantees provided under this section impose strict requirements on businesses that accept the relief.

Section 4003 authorizes the Secretary of the Treasury to deploy $500 billion in emergency relief funds to provide loans, guarantees, and other investments in support of eligible businesses, which includes air carriers and United States business that have not otherwise received adequate economic relief  in the form of loans or loan guarantees under the Act, States, and Municipalities, distributed as follows:

  • $25 billion to provide loans and loan guarantees for passenger air carriers and eligible businesses that are approved to perform inspection, repair, replace or overhaul services that are related to passenger air service, and ticket agents.
  • $4 billion to provide loans and loan guarantees for cargo air carriers.
  • $17 billion to provide for loans and loan guarantees to businesses critical to maintaining national security.
  • $454 billion and any amounts not utilized above is allocated to provide loans and loan guarantees to eligible business. 

The $454 billion listed above is for programs or facilities established by the Board of Governors of the Federal Reserve System to inject liquidity into the financial system to support lending to eligible businesses, States or Municipalities. The Treasury Secretary is given broad authority, subject to the outlined restrictions, to establish the terms and conditions, covenants, representations, warranties, and other requirements (including audit requirements).  

Loans to Eligible Businesses, States, and Municipalities

As noted above, Title IV includes $454 billion in funds to establish a program to inject liquidity into the financial system. Should one of the implementing programs include direct lending by the Treasury to eligible businesses, the recipient businesses must agree to the following terms that will be in effect for the term of the loan, plus the succeeding 12 months:

  • The eligible business agrees not to repurchase any of its equity securities or those of any parent company, unless it is required to do so pursuant to a contractual obligation; and
  • The eligible business agrees to not pay dividends or make other capital distributions with respect to its common stock.

Unlike the loans provide in the preceding paragraph, which would involve direct loans by the Treasury to the respective eligible businesses, the succeeding paragraph would involve loans from private lenders. 

Title IV provides that the Treasury Secretary “shall endeavor” to implement a program within the $454 billion that provides financing to banks and other lenders that make loans to eligible businesses, including nonprofits, with between 500 and 10,000 employees, with such loan to have an annualized rate not higher than 2 percent. For the first six months of financing under this program, no principal or interest shall be due. Funding under this section requires the recipient borrower to make the following good-faith certifications:

  • The loan is necessary for ongoing operations of the recipient;
  • Any funds received will be used to retain at least 90 percent of the recipient’s workforce, with full compensation, until Sept. 30, 2020;
  • The recipient must intend to restore not less than 90 percent of its workforce that existed on Feb. 1, 2020, and to restore all compensation and benefits to its workers no later than four months after the date on which the health emergency is terminated;
  • The recipient is domiciled in the U.S., with significant operations and employees located in the U.S.
  • The recipient is not a debtor in bankruptcy;
  • The recipient will not pay dividends with respect to its common stock or repurchase its equity securities or those of a parent company during the term of the loan; and
  • The recipient will not outsource or offshore jobs for the term of the loan and for two years after completing repayment of said loan.

The Act also references implementing a “Main Street Lending Program” or other similar program or facility that the Federal Reserve can administer to small and mid-sized businesses pursuant to its existing authority under the Federal Reserve Act (without the federal backstop provided by the Treasury Department’s Economic Stabilization stimulus). This program would complement the Payroll Protection Program in the Act, which provides for loans in a Small Business Administration (SBA) framework to businesses with less than 500 employees. No additional details are provided on this program, but the funds available under this program might not be subject to the requirements and limitations of the Act.

It is important to note that, given the discretionary language of the provision, it remains unclear the degree to which the administration will choose to implement these terms.

Loans to Passenger Air Carriers, Cargo Air Carriers, and Businesses Maintaining National Security

This category of borrowers has a special set of requirements under the Act, which requires the Treasury Secretary to make the following determinations regarding loans and loan guarantees:

  • Credit is not otherwise reasonably available to the recipient at the time of the transaction;
  • The obligation is prudently incurred;
  • The loan or loan guarantee is sufficiently secured, or is made at a rate that reflects risk and, to the extent practicable, is not less than the interest rate based on market conditions of comparable obligations prior to the COVID-19 outbreak;
  • The loan or loan guarantee is for as short as practicable, and not longer than five years;
  • For the length of the loan or loan guarantee plus 12 months, neither the business nor any affiliate may engage in stock buy-backs;
  • For the length of the loan or loan guarantee plus 12 months, the business may not pay dividends or make other capital distributions with respect to common stock;
  • Until Sept. 30, 2020, the business must maintain its employment levels as of March 24, 2020, to the extent practicable, and in no case can reduce its employment levels by more than 10 percent from that date;
  • A business must certify that it is created or organized in the U.S. and has both significant operations and a majority of its employees based in the U.S.; and
  • For the purpose of these loans or loan guarantees, the business must have incurred or is expected to incur covered losses such that continued operations are in jeopardy, as determined by the Treasury Secretary.

Furthermore, all passenger air carriers, cargo air carriers, and national security businesses that benefit from the financial assistance under Title IV must also do the following, as directed by the Treasury Secretary:

  • Provide the Treasury Department with a warrant or equity interest if the recipient issues securities on a national exchange; or
  • Provide the Treasury Department with a warrant, equity interest, or senior debt instrument.

Eligible businesses will need to consider the implications of participating in these programs under covenants in existing financing arrangements.

Limitation on Employee Compensation

In order for an eligible borrower to participate in Title IV funding programs, the borrower must agree to restrict all employee compensation. The Act imposes certain compensation restrictions for officers and employees at companies receiving loans or loan guarantees.  Under these restrictions, officers or employees that received $425,000 or more in total compensation in 2019 will have their future compensation capped at the amount they received that year.  This restriction applies while the loan or loan guarantee is in effect, as well as to the 12 consecutive months after the loan or loan guarantee is no longer outstanding. The same restriction also applies to severance payments or other compensation received upon termination, which cannot exceed twice the 2019 compensation amount. Additional restrictions apply for officers and employees whose total compensation exceeded $3,000,000 in 2019.  Under the Act, these individuals may receive compensation up to $3,000,000 plus 50 percent of the excess over $3,000,000 of the total compensation received by the officer or employee in 2019. For purposes of this Act, compensation shall include all salary, bonuses, awards of stock, and other financial benefits provided to the officer or employee of the eligible business.

Tax Implications under Title IV

Any loan made by or guaranteed by the Treasury under Title IV shall be treated as indebtedness for purposes of the Internal Revenue Code, and will be treated as issued for its stated principal amount, and stated interest on such loans will be treated as qualified stated interest. The Treasury Secretary is instructed to issue such regulations or guidance as is necessary or appropriate to carry out the purposes of Title IV, including guidance providing that the acquisition of warrants, stock options, common or preferred stock or other equity under Title IV does not or will not result in a change of ownership for purposes of the Internal Revenue Code. 

Credit Protection 

For those worried about the impact that the emergency has on their finance and credit, the Act requires that furnishers of information to credit reporting agencies who agree to accommodations, including forbearances, or modified payments for consumers that are impacted by COVID-19, report the obligation or account as “current” or as the status reported prior to the accommodation during the period of accommodation unless the consumer becomes current. This provision does not apply to credit obligations or accounts that have been charged off. The credit protection begins on January 31, 2020 and ends at the later of 120 days after enactment or 120 days after the date the national emergency declaration related to the coronavirus is terminated.

Moratorium on Certain Real Estate Mortgage and Rent Payment Remedies

With all of the uncertainty surrounding individuals and their ability to pay their rent and mortgage, the Act provides some relief as it prohibits foreclosures on all federally backed mortgage loans for a 60-day period beginning on March 18, 2020. Additionally, it provides up to 180 days of forbearance for borrowers of a federally backed mortgage loan who have experienced a financial hardship related to the COVID-19 emergency. Applicable mortgages include those purchased by Fannie Mae and Freddie Mac, insured by the U.S. Department of Housing and Urban Development (HUD), Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA), or directly made by USDA. The authority provided under this section terminates on the earlier of the termination date of the national emergency concerning the coronavirus or December 31, 2020.

The Act provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship. Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. Applicable mortgages include loans for real property designed to house 5 or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, or HUD. The authority provided under this section terminates on the earlier of the termination date of the national emergency concerning the coronavirus or December 31, 2020.

For 120 days beginning on the date of enactment, landlords are prohibited from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other charges to the tenant related to such nonpayment of rent where the landlord’s mortgage on that property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.

Your team at Johnson Pope is ready to answer any questions that may arise. Please contact either your regular attorney at the firm, Grant Sittig ( or (813) 467-8903) or John Martin ( or (727) 461-1818).



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