Executive Order Provides PPP Loans Not Subject to Florida Doc Stamps Tax

By: Amanda Wilson and Matt O’Kane

The Paycheck Protection Program included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows businesses with 500 or fewer employees to receive federally-guaranteed loans to pay payroll costs, rent, and certain other expenses in an effort to keep these employees on their employer’s payroll. The program provides for subsequent loan forgiveness if the employer retains its employees and satisfies other requirements (a discussion of these requirements can be found here).

As Florida businesses rush to apply for Paycheck Protection Program loans, an unexpected cost of these loans was surfacing. The State of Florida imposes a documentary stamp tax on promissory notes and other written promises to pay a sum certain signed or delivered in the State of Florida. As a result, the tax would, absent governmental action, apply to Paycheck Protection Program loans.

On Monday, Governor DeSantis issued Executive Order Number 20-95, which provides that the Florida documentary stamp tax would not apply to any of these loans. Absent this action, Florida small businesses receiving these loans would have been subject to tax at the rate of 35 cents per $100 of principal (or portion thereof), subject to a maximum tax of $2,450. This executive order provides some additional relief for small businesses struggling in the face of the coronavirus pandemic.

It should be noted that the executive order was explicitly limited to Title I of the CARES Act, which governs the Paycheck Protection Program. The executive order does not extend to Title IV of the CARES Act, which provides for a $500 billion loan program for large businesses and municipalities.

Be sure to visit our Coronavirus (COVID-19) Response Team page to keep up-to-date on the latest news.

Further Crackdown on Offshore Corporations

New law ahead road signBy:  Amanda Wilson

In their continued effort to crackdown on offshore activity, the IRS and Treasury released proposed regulations yesterday that target debt held by foreign partnerships.  These regulations provide that debt held by foreign partnerships will be treated as an obligation of the partnership’s U.S. partners for purposes of the controlled foreign corporation rules (Section 956).  The allocation of debt to the partners would be based on the partners’ interests in the partnership’s profits.

What is the reason for this change?  If a controlled foreign corporation loans money to its U.S. parent or shareholder, the loan may be treated as a deemed dividend under Section 956, resulting in taxation of the earnings parked offshore.  To avoid this deemed dividend treatment, taxpayers are inserting a foreign partnership between the controlled foreign corporation and the U.S. parent or shareholder, and having the controlled foreign corporation loan the money to the foreign partnership.   The proposed regulations are designed to shut down this loophole.

An exception to this new rule would be available in cases where neither the lending controlled foreign corporation or any person related to the lending controlled foreign corporation is a partner in the partnership.


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