Newly enacted legislation and regulatory developments in the wake of the economic disruption caused by COVID-19 could specifically impact life sciences companies. These measures can be found largely within the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Below, we outline the six tax provisions most likely to affect companies in the life sciences industry.
Deferred Tax Deadlines and Payments
Most federal income-tax filings and payments due April 15, 2020—both for individuals and corporations—have been deferred. Learn more in our tax filing webcast.
Net Operating Losses
Life sciences companies frequently receive large upfront or milestone payments, which can create significant taxable income in a year. In other years, however, companies may generate significant net operating losses (NOLs).
The tax law passed in 2017, commonly referred to as the Tax Cuts and Jobs Act (TCJA), and previous tax law established the limited carryback potential of NOLs. The CARES Act changes that by providing a five-year NOL carryback for losses arising in 2018, 2019, or 2020 taxable years. Learn more in our NOLs webcast.
Alternative Minimum Tax Credits
Life sciences companies with large upfront or milestone payments that created significant taxable income not fully offset with NOLs were historically assessed with an Alternative Minimum Tax (AMT).
Taxes paid because of the AMT were then able to be used as tax credits in future periods. Due to the variable revenue of life sciences companies, however, these credits weren’t frequently able to be used.
The CARES Act changes that. Corporations with carryover AMT credits are now able to recover the credits in their first tax year beginning in 2019. Learn more in our AMT webcast.
Implications of the Recent Accounting Standards Codification Topic 740 Changes
Most life-sciences companies are public or on their way to becoming public. As such, the enactment of a new tax law impacts how those companies report taxes for generally accepted accounting principles (GAAP) purposes.
Public companies will now need to factor in changes to their annual effective tax rate or include them as a discrete item based on the day of enactment.
All the provisions included must be considered for companies with financials statements. For public companies, the deadline to do so could be as early as April. Learn more in our ASC 70 webcast.
Life sciences companies typically employ a large number of people—many of whom are well-paid researchers. Accordingly, payroll costs are a significant expense.
The FFCRA and CARES Act both contain payroll-tax provisions designed to get cash to companies, enabling them to pay for new mandated benefits, if applicable, and keep employees on payroll.
These include employee retention, sick pay, and family medical leave tax credits. Learn more in our Payroll Tax Deferral for Employers webcast and Relief for Employers Impacted by COVID-19 insight.
Deducibility of Interest
Many life sciences companies incur debt early in their lifecycle. While the TCJA limited the debt-interest deduction to 30% of adjusted taxable income, the CARES Act changes that. Learn more in our business interest limitation webcast.
We’re Here to Help
For more information about how these tax provisions might affect your life sciences company, contact your Moss Adams professional.