KCBAA wants to make sure all of our members are aware of the economic aid available through the U.S. Government. On March 27, 2020 the Federal Government signed in to law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act with approximately $2M in stimulus funding. A few highlights that may be relevant to you or your business:

• Payroll Protection Plan (PPP): $349 billion was set aside for small businesses (500 employees or less) to cover approximately 8 weeks of payroll. The loan is 100% forgiven if the business agrees not to lay off its work force or reduce salaries by more than 25%. Due to the popularity of the program, Congress is working to increase the amount available. The deadline to apply is June 30^th, and application should be made through your current bank.

• Tax Relief: If you do not receive a loan under the PPP, you are eligible for a credit against employment taxes for 50% of each employee’s wages, up to $10,000 per employee.

• SBA Loan Debt Relief: Any SBA loan payment, including principal, interest, and fees, could be covered by the SBA for six months.

• Emergency Economic Stimulation: $454B is to be injected into financial institutions to provide credit to businesses that have not otherwise received adequate economic relief in the form of loans or loan guarantees provided under this Act. This includes $50B in grants and loans set aside specifically for Air Carriers. The application due dates for these loans vary, but many are approaching quickly in early to mid-April.

• Excise Tax Relief: Any transportation or fuel provided from March 27, 2020 until January 1, 2021 will not be subject to Federal Excise Tax.

• FFCRA: The Families First Coronavirus Response Act (separate from the CARES Act) requires employers to pay sick leave for employees impacted by COVID-19 and to pay time off to take care of family members due to COVID-19.

The CARES Act is over 900 pages and this is only a brief summary of a few provisions. If there are other provisions you’ve heard and would like to understand better please feel free to ask and we will try to provide any information we can.

Please also share any knowledge or experience you have had with the CARES Act thus far that may be beneficial to other KCBAA member.

We hope everyone is staying healthy and wishing everyone the best through this tough time.

Here is some generic information you may want to share with your CFO or tax advisor as there are major tax implications with the CARES Act regarding aircraft acquisitions.  

CARES Act Net Operating Loss provisions

can benefit business aircraft acquisition in 2020

The recently enacted Coronavirus Aid, Relief, and Economic Security Act (the CARES Act or ‘the Act’) reinstates the ability for taxpayers to deduct current year tax losses against income from a prior tax year and receive immediate tax refund.  The concept of a "Net Operating Loss Carryback" (NOLCB) is intriguing. 

Normally, when one’s income tax payment is remitted, it is gone. However, NOLCB actually allows tax payments from up to five years ago to be refunded, due to a loss incurred in the current year. This may have implication for companies who are looking to purchase a business aircraft in 2020.

Here is a simple illustration. Your company (C corporation) has net income of $1,000,000 in 2020. You are considering the purchase of a $5,000,000 business aircraft to help manage and grow your business. Assuming 100% business use of the aircraft for 2020, you will be allowed a $5,000,000 depreciation deduction on the aircraft. The resulting tax loss is $(4,000,000). The Act allows this loss to be carried back to tax year 2015 and applied against your 2015 taxable income. This will result in a reduction of $(4,000,000) in 2015 taxable income, which is a tax refund of $1,400,000 at the federal corporate tax rate of 35%. If the loss is not fully absorbed by 2015 income, the remaining loss can be carried to 2016, 2017 tax years, etc, until fully absorbed by prior year taxable income.

2020 business income $1,000,000                                                                     

Acquisition of a business aircraft $5,000,000                                                     

100% Bonus Depreciation $(5,000,000)                                                                                                    

2020 Taxable Income$ (4,000,000)                                                                                                             

CARES Act Net Operating Loss Carry Back (NOLCB)

2015 taxable income $10,000,000                                                                                                             

NOLCB from 2020                      $(4,000,000)                                                                                                

Revised 2015 taxable income $6,000,000                                                                                                  

Corporate tax rate in effect      35%                                                                      

Tax refund due $1,400,000                                                                                                                          

The same regulations apply to S corporation or LLC pass-through entities. The difference is that the net operating loss will be reported on the shareholder’s or LLC member’s individual income tax return (Form

1040).

Due to the Coronavirus pandemic and the lockdown of the economy, many companies will experience a significant decline in income in 2020. With the acquisition of a business aircraft and 100% bonus depreciation, a taxpayer can receive income tax refunds from as far back as 2015. While it may be a daunting task to make a significant capital acquisition in the current economic environment, for those companies that are able to weather the storm and position your business for a robust rebound, this tax provision should be carefully evaluated with your tax advisors.