The COVID-19 pandemic has had a substantial impact on the global economy across all business sectors, and the food and beverage industry has seen particular hardships. The U.S. government has responded with a variety of legislation aimed at reducing the financial burden on businesses with the hopes that it will stabilize the economy.
There are some rules, both new and old, of which businesses in the food and beverage industry should be aware.
The Coronavirus Aid, Relief and Economic Stability Act Provisions
The Coronavirus Aid, Relief and Economic Stability (“CARES”) Act, a $2 trillion omnibus spending package, was signed into law on March 27, 2020. Along with generally applicable provisions, the CARES Act also included a couple of provisions uniquely specifically targeting the food and beverage industry. (Be sure to check out GHJ’s recent blogs about the farming bailout and the USDA’s provisions to assist.)
Under the new rules, the deductible cash contribution limit for electing corporations is increased from 10 percent of taxable income to 25 percent for contributions made in 2020. Partners in a partnership or S-corporation shareholders must elect to utilize the increased contribution limits on an individual partner or shareholder basis.
Further, 2020 contributions of food inventory that IRC §170(e)(3)(C) applies to can be deducted up to 25 percent of taxable income for C-corporations. Non-C-corporation taxpayers may deduct these contributions up to 25 percent of a taxpayer’s aggregate net income from which the food inventory contributions arise.
Alcohol Excise Tax Exemption
Distilled spirits removed from a distillery during 2020 that are used to produce and distribute hand sanitizer, according to relevant FDA guidelines for the COVID-19 pandemic, are exempt from the excise tax imposed by IRC §5214.
Internal Revenue Code §165(i)
On March 13, 2020 the President made an emergency declaration for the ongoing COVID-19 pandemic under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”) for all states, tribes, territories and the District of Columbia. This declaration triggered the disaster loss provisions of IRC section 165(i), which allows a taxpayer to elect to deduct certain losses in the taxable year immediately preceding the year in which the loss occurs.
Businesses may claim non-reimbursed casualty losses on their 2019 Form 4684 Casualties and Thefts for inventory, supplies or other property that is no longer useable that is disposed of in 2020.
By nature, the food and beverage industry deals with perishable inventory, thus may claim a 2019 casualty loss for any inventory lost as a result of the COVID-19 pandemic. Further, businesses should maintain documentation sufficient to substantiate the amount of any loss. Additionally, businesses should be aware that states may or may not conform to this code section.
Tax rules are complex and nuanced; if you have questions about any of the above topics or other items related to COVID-19, please contact the GHJ Food and Beverage Team to learn more about these trends and how we could assist your business during COVID-19.
Additionally, GHJ’s COVID-19 Response Team has as an experienced team of consultants specializing in cash-flow projections, strategy and operations consulting and re-organizations. We are here to assist organizations to succeed in these very challenging times.