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Tax-Free Grants for Restaurants

Published on: Published in: Taxes

Article Highlights:

  • Restaurant Revitalization Fund
  • Eligible Entities
  • Application Good-Faith Certification
  • Tax Issues
  • Covered Period
  • Available Funding
  • Priority in Awarding Grants
  • Determination of Grant Amount
  • Use of Funds
  • Applying for a Grant

The American Rescue Plan Act established the Restaurant Revitalization Fund (RRF) to provide funding to help restaurants and other eligible businesses keep their doors open. This program will provide restaurants with funding equal to their pandemic-related revenue loss, up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.

Eligible Entities – Eligible entities are businesses that are not permanently closed and include businesses where the public or patrons assemble for the primary purpose of being served food or drink, including:

  • Restaurants
  • Food stands, food trucks and food carts
  • Caterers
  • Bars, saloons, lounges and taverns
  • Licensed facilities or premises of an alcoholic beverage producer where the public may taste, sample, or purchase products
  • Other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink
  • Snack and nonalcoholic beverage bars

The following types of businesses are also eligible if they can document that their on-site sales to the public comprised at least 33% of gross receipts in 2019. For businesses that opened in 2020 or that have not yet opened, the applicant’s original business model should have contemplated at least 33% of gross receipts in on-site sales to the public.

  • Bakeries
  • Brewpubs, tasting rooms and taprooms
  • Breweries and microbreweries
  • Wineries and distilleries
  • Inns – Based on on-site sales of food and beverage rather than gross receipts.

Note: All businesses must satisfy the statutory requirement for “place of business in which the public or patrons assemble for the primary purpose of being served food or drink,” and an eligible entity must have had at least 33% in 2019 of on-site sales to the public. The original business model of eligible entities that opened in 2020 or that have not yet opened should have contemplated at least 33% of gross receipts in on-site sales to the public.

Those entities without additional documentation requirements, such as restaurants and bars, are presumed to have on-site sales to the public comprising at least 33% of gross receipts in 2019. All applicants must attest to the following in the application: “The Applicant is eligible to receive funding under the rules in effect at the time this application is submitted.”

  • Eligible entities do not include:
    • State- or local government-operated businesses.
    • Any entity that owned or operated more than 20 locations on March 13, 2020, regardless of whether those locations do business under the same or multiple names.
  • Any entity with a pending application for or that has received a grant under Sec 324 of the Economic Aid to Hard-Hit Small Businesses Act (PL 116-260).
  • Publicly traded companies.

Application Good-Faith Certification – An eligible entity applying for a grant under this subsection must make a good-faith certification that:

  • The uncertainty of current economic conditions makes the grant request necessary to support the ongoing operations of the eligible entity.
  • The eligible entity has not applied for or received a grant under Sec 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III of Division N of the Consolidated Appropriations Act, 2021).

Tax Issues 

  • These grants are tax free.
  • No deduction or basis increase is denied, and no tax attribute is reduced by reason of the gross income exclusion.
  • Since the restaurant revitalization grants are treated as tax-exempt income, they will be allocated to partners or shareholders and increase their bases in their partnership or S corporation interests.

Covered Period – The period beginning on February 15, 2020 and ending on March 11, 2023. If the business permanently closes, the covered period will end when the business permanently closes or on March 11, 2023, whichever occurs sooner. Recipients that are unable to use all of the funds received on eligible expenses by the end of the covered period must return any unused funds to the Treasury.

Available Funding

  • $5 billion will be available for grants to businesses with gross receipts of no more than $500,000 in 2019.
  • $20 billion will be available to the SBA administrator to award grants equitably to eligible entities of various sizes based on annual gross receipts.

Priority in Awarding Grants – During the initial 21-day award period, the SBA will prioritize awarding grants to eligible entities most relevant to small business concerns:

  • Owned and controlled by women,
  • Owned and controlled by veterans, or
  • Socially and economically disadvantaged small business concerns.

To obtain priority, an applicant must submit self-certification for eligibility.

Determination of Grant Amount – The amount of a grant made to an eligible entity under this provision will be equal to the eligible entity’s pandemic-related revenue loss less any PPP loan amount; any amount not used for qualified expenses must be returned to the Treasury.

Example: Heidi’s Café had 2019 gross receipts of $2,000,000, and in 2020, the gross receipts were only $800,000 because the business was closed most of the year due to the pandemic. Heidi’s gross revenue loss is $1,200,000. Heidi’s Café had received a PPP loan of $500,000, so the business would be eligible for a grant of $700,000.

The aggregate amount of grants made to an eligible entity and any affiliated businesses (an affiliated business is one that has an equity or right to profit distributions of not less than 50 percent) will:

  • Not exceed $10 million and
  • Will be limited to $5 million per physical location of the eligible entity.

Use of Funds – During the covered period, an entity that receives a grant may use the grant funds for the following expenses incurred as a direct result of, or during, the COVID–19 pandemic:

  • Payroll costs, including sick leave and costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave; and group health care, life, disability, vision, or dental insurance premiums.
  • Payments on any business mortgage obligation (both principal and interest. Note: this does not include any prepayment of principal on a mortgage obligation).
  • Business rent payments, including rent under a lease agreement (Note: this does not include any prepayment of rent).
  • Business debt service (both principal and interest. Note: this does not include any prepayment of principal or interest).
  • Business utility payments for the distribution of electricity, gas, water, telephone, or internet access, or any other utility that is used in the ordinary course of business for which service began before March 11, 2021.
  • Business maintenance expenses including maintenance on walls, floors, deck surfaces, furniture, fixtures, and equipment.
  • Construction of outdoor seating.
  • Business supplies, including protective equipment and cleaning materials.
  • Business food and beverage expenses, including raw materials for beer, wine, or spirits.
  • Covered supplier costs, which is an expenditure made by the eligible entity to a supplier of goods for goods that:
    • Are essential to the operations of the entity at the time at which the expenditure is made; and
    • Is made pursuant to a contract, order, or purchase order in effect at any time before the receipt of Restaurant Revitalization funds; or
  • With respect to perishable goods, a contract, order, or purchase order in effect before or at any time during the covered period.
  • Business operating expenses, which are defined as business expenses incurred through normal business operations that are necessary and mandatory for the business (e.g., rent, equipment, supplies, inventory, accounting, training, legal, marketing, insurance, licenses, fees). Business operating expenses do not include expenses that occur outside of a company’s day-to-day activities. Note: Past-due expenses are eligible if they were incurred beginning on February 15, 2020 and ending on March 11, 2023.

Applying for a Grant

The SBA has added an application portal to its website. They will take about 14 days to process applications once the portal begins accepting them.

Remember, as mentioned previously, during the first 21 days of the program, funds will only be distributed to businesses that are majority owned by women, veterans, or socially and economically disadvantaged individuals. If you qualify, you should be prepared to submit your application within the first 21 days.

A sample application can be downloaded and prepared in advance.

Additional information is available from the SBA website or the Program Guide PDF.

If you have questions or need assistance regarding this program, please give this office a call.