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10.21.20

The RESTAURANTS Act: Will Congress Deliver Additional Financial Relief?
James Pellino

As the COVID-19 pandemic continues to take a toll on the U.S. economy, restaurants and bars remain among the hardest-hit businesses. A bill pending in Congress, if enacted, would provide the industry with much-needed financial relief. The tortuously named Real Economic Support That Acknowledges Unique Restaurant Assistance Needed To Survive (RESTAURANTS) Act of 2020 would establish a $120 billion Restaurant Revitalization Fund to provide grants to eligible food service and drinking establishments through the end of the year.

Although the likelihood of passage is not yet certain, the Act has bipartisan sponsorship in Congress and widespread support among industry groups. In the meantime, restaurants and bars should determine their eligibility and be prepared to gather the documentation they need to support a grant application. The following are highlights of the Act.

Which Businesses Are Eligible?

The RESTAURANTS Act would make grants available to restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges and other similar businesses whose primary purpose is to serve food or drink to patrons or the public. A business is not eligible, however, if it is:

  • Part of a chain or franchise with at least 20 locations (as of March 13, 2020) doing business under the same name, regardless of ownership type;
  • A publicly-traded company (including a subsidiary or affiliate thereof); or
  • Part of a state or local government facility (other than an airport).

Eligible businesses may not receive more than one grant.

How May the Funds Be Used?

Grant funds may be used for the following expenses:

  • Payroll;
  • Mortgage principal or interest;
  • Rent;
  • Utilities;
  • Maintenance (including construction to accommodate outdoor seating);
  • Supplies (including protective equipment and cleaning materials);
  • Food and beverage;
  • Debt to suppliers incurred before February 15, 2020; and
  • Other expenses deemed essential by the Treasury Department.

Funds that have not been used by the end of the year will be converted into a loan with an interest rate of 1% and a maturity date of ten years. Businesses that cease operations before the end of the year must return any unused funds.

Are Grants Taxable?

The Act provides that grants awarded to eligible businesses are excluded from the gross income of the businesses, without affecting the deductibility of expenses paid for with grant funds. Businesses that receive these grants, however, will be ineligible for payroll tax credits under the CARES Act.

How Is the Grant Amount Determined?

The amount of a grant is based on the shortfall of a business’ revenues or estimated revenues during a 2020 calendar quarter (designated by the business) as compared to the same calendar quarter in 2019. If a grant is based on estimated revenues, any excess grant amount based on the difference between estimated and actual revenues will be converted into a loan at 1% interest and a ten-year maturity, beginning January 1, 2021. Grant amounts may be subject to reduction if a business received an emergency grant under the Economic Injury Disaster Loan (EIDL) program or loan forgiveness under the Paycheck Protection Program (PPP) related to expenses incurred during the same time period.

Related Read: PPP Application Deadline Extended — $129 Billion Available

How Will Grants Be Awarded?

The Treasury Department will award grants to eligible businesses in the order in which applications are received. However, during the initial 14-day period in which grants are awarded, Treasury will (1) prioritize grants to “marginalized and underrepresented communities,” with a focus on women- and minority-owned businesses; and (2) limit awards to businesses with annual revenues of less than $1.5 million.

If the Act becomes law, Treasury will establish grant application procedures. Among other things, applicants will be required to certify their need for and intended use of the funds and submit appropriate revenue verification documentation to support the requested grant amount.

Related Read: CARES Act Creates Tax Refund Opportunity for Many Restaurants

For more information about the RESTAURANT Act and other financial relief for restaurants, please contact Jim Pellino. Visit ORBA.com to learn more about our Restaurant Group.

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