The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions. Under the ARPA, eligible restaurants, food trucks and similar businesses may receive relief from the SBA’s Restaurant Revitalization Grant Program.
Which businesses are eligible?
To be eligible for a restaurant revitalization grant, a business’ primary purpose must be serving food and drinks. The following businesses are not eligible for a restaurant revitalization grant: businesses operated by state or local government; entities with more than 20 locations (including affiliates); and entities which applied for the Shattered Venue Operators Grant Program.
What is the value for the grant?
Restaurant revitalization grants will not exceed $10 million dollars per entity and are limited to $5 million per physical location. Therefore, if you operate a restaurant in a single location the maximum which can be applied for is $5 million.
The amount an entity can apply for is determined by pandemic related revenue loss of the eligible entity between 2.15.2020 and 12.31.2021. Pandemic related loss is calculated by gross receipts in decline in 2020 compared to gross receipts in 2019. Note that pandemic related loss is reduced by any PPP loans taken out by the entity. Furthermore, a business will need to provide certification proving economic necessity for the loan.
Tax implications of the restaurant revitalization grant
Key tax implications of a restaurant revitalization grant are as follows.
- Amounts received as restaurant revitalization grants are excluded from the gross income of the person who receives the funds, and
- No deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.
In the case of a partnership or S corporation that receives a restaurant revitalization grant, any amount of the grant excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because restaurant revitalization grants are treated as tax-exempt income, they’ll be allocated to partners or shareholders and increase their bases in their partnership interests.
The IRS is expected to prescribe rules for determining a partner’s distributive share of the grant for federal tax purposes. And S corporation shareholders will receive allocations of tax-exempt income from restaurant revitalization grants in proportion to their ownership interests in the company under the single-class-of-stock rule.
Help with the process
The provisions related to restaurant revitalization grants are effective as of the ARPA’s date of enactment: March 11, 2021. Contact us at (818) 789 1179 for help determining whether your small business or restaurant may qualify for financial relief under the ARPA and, if so, for assistance with the application process.