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Business Tax Implications in the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a powerful tool for the country’s economic recovery. The law was signed into effect on March 27 to provide short-term relief to affected businesses and will have lasting impacts that are likely felt far into next year and beyond. The passage of the CARES Act has temporarily reduced limits on losses, which may create an increased tax benefit for non-corporate taxpayers that own pass-through entities.

To help CPAs and other valuation experts meet the challenges ahead, AICPA has issued FAQs about adjusting business valuations. 

Business Tax Provisions

Valuators need to consider the impact that business tax provisions could have on their valuation. Suppose uncertainty exists as of a particular date. In that case, it may be worth considering scenario analysis to make an informed decision about what assumptions should go into account when assessing value.

The cash flows arising from business tax provisions may be immediate or future. This aspect needs to consider the impact on your balance sheet and any deferred taxes such as assets and liabilities this could create for you regarding how much income will need protecting down the line if these laws change later than expected. 

When using an average weighting cost of capital in determining the value under an income approach method, one should consider if interest rate deductibility from CARES Act impacts long-term debt costs at the valuation date. The analyst may need to adjust this amount for any allowable discounts on their behalf concerning what they would have otherwise paid off over time.

The Market and Asset Approach

Under the asset approach, a valuation analyst must consider whether any business tax provisions applicable to an entity generate assets or liabilities that aren’t already reflected on its financial statements as of their date.

The company’s financial metrics and valuation multiples will be impacted by considering the provisions applicable to both publicly traded companies and private companies. Additionally, professionals must consider any nonrecurring income or expenses that may arise in their earnings stream when analyzing this transaction. 

This discussion of the CARES Act has been limited to business tax implications. The AICPA also created additional FAQs regarding PPP Loans, debt relief programs, and more in their effort for clarity on these topics, which can be found at 

The FAQs and information in this article are intended to clarify any confusion about how tax professionals should perform valuations. Professionals must rely on their experience and professional judgment when performing valuations despite the revisions.