The IRS is stirring anger.
The beloved revenue-gathering arm of the United States government issued guidance last week to clarify that no tax deduction would be allowed for expenses paid using a forgivable loan in the Paycheck Protection Program (PPP).
Politicians and advocates on both sides of the aisle immediately objected, and now a bipartisan group of lawmakers are looking to reverse the decision.
Senate Finance Committee Chairman Chuck Grassley, R-Iowa, joined Sens. John Cornyn, R-Texas, Ron Wyden, D-Ore., Marco Rubio, R-Fla., and Tom Carper, D-Del., to introduce the Small Business Expense Protection Act on Wednesday, which would confirm that small businesses can deduct expenses paid with a PPP loan.
“When we developed and passed the Paycheck Protection Program, our intent was clearly to make sure small businesses had the liquidity and the help they needed to get through these difficult times,” Grassley said in a statement. “Unfortunately, Treasury and the IRS interpreted the law in a way that’s preventing businesses from deducting expenses associated with PPP loans. That’s just the opposite of what we intended and should be fixed. This bill will do just that.”
“The congressional intent of the PPP program was to keep workers connected to their jobs and to ease the financial burden on small businesses so they could weather this pandemic,” Rubio added. “Borrowers should not be penalized by new taxes because they sought help during this unprecedented crisis.”
‘Contrary to Congressional Intent’
The senators note that the intent of the Paycheck Protection Program, which was created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, “was to maximize small businesses’ ability to maintain liquidity, retain their employees, and recover from the pandemic as soon as possible.”
The IRS notice that said small businesses cannot deduct these business expenses is contrary to congressional intent, they claim.
According to the Small Business Administration, more than two million loans amounting to more than $175 billion have been made to small businesses since the second round of PPP loan processing began on April 27, surpassing the number of all loans made in the first round.
The average loan size in the second round was estimated at $79,000, and almost 500,000 of the loans were made by lenders with less than $1 billion in assets and non-banks.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
