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Fed Exception Will Let Pass-Through Entities Get Emergency Loans (1)

April 30, 2020, 4:48 PMUpdated: April 30, 2020, 6:23 PM

The Federal Reserve has created an exception to allow S corporations and other pass-through businesses to access emergency loans.

The Thursday guidance allows those businesses to distribute funds to their owners as they would prior to the loan, “to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.”

  • The emergency relief law (Public Law 116-136) that allowed the Fed to create the lending programs prohibits companies that receive federal assistance from paying dividends or making other capital distributions to shareholders.
  • Owners of S corporations and other pass-through businesses, which can range from small businesses to multi-billion dollar companies, were concerned previous loan rules issued by the Fed and based off that prohibition would exclude them from the lending program because of quarterly capital distributions to owners for tax purposes.
  • An October 2019 EY report commissioned by the S Corporation Association estimated that S corps with more than 100 people employed about 13.1 million people in 2016.
  • The exception is one of many changes the Fed announced Thursday to make the program available to more businesses.
  • Read More: Businesses Fearing Exclusion From Fed Loans Push for Change
(Updates to add information on other changes in fourth bullet. A previous version corrected the number of individuals employed by S corporations.)

To contact the reporter on this story: Colin Wilhelm in Washington at cwilhelm@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com