SMACNA is urging the House to support a bipartisan technical correction to ensure that small businesses can deduct eligible expenses paid with a forgiven Paycheck Protection Program (PPP) loan from their taxes this year. Without this relief, millions of small businesses will face significant tax liabilities at a time when they can least afford additional financial burdens.
When Congress approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP was designed to help small businesses survive major liquidity shortfalls, retain employees, and withstand an unprecedented economic disruption due to the COVID-19 pandemic. However, the Internal Revenue Service’s (IRS) Notice 2020-32 undermines the PPP and creates a severe challenge for small businesses by stating that normally deductible business expenses will not be deductible if the business pays the expense with a PPP loan that is subsequently forgiven. Congressional intent was clear within Section 1106(i) of the CARES Act, which states:
(i) TAXABILITY — For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.
Additionally, the IRS recently issued Revenue Ruling 2020-27, stating that expenses funded through a PPP loan are not deductible for 2020 if “the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year” [emphasis added]. The Small Business Expense Protection Act (H.R. 6821) or any similar technical correction language will fix this misinterpretation and reestablish the ability of small businesses that have received PPP loans to deduct business expenses as the CARES Act intends.
