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Business groups push Congress to deduct business expenses related to PPP loans

House Speaker Nancy Pelosi (R), D-Calif., And Senate Minority Leader Chuck Schumer, DN.Y., hold a media availability on Capitol Hill on November 6, 2020.

Nicolas Kamm | AFP | Getty Images

Hundreds of business groups are pushing lawmakers to allow paycheck protection program borrowers to write off expenses covered by the loan proceeds.

“We ask you to bring that same spirit of urgency and cooperation before the end of this session to avert a preventable disaster for millions of small businesses who, without Congressional action, will face a startling tax bill and, in many cases, insurmountable next time around. year, ”the professional associations wrote in a Dec. 3 letter to House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Mitch McConnell, R-Ky.

The missive was also sent to Senate Minority Leader Chuck Schumer, DN.Y, and Parliamentary Minority Leader Kevin McCarthy, R-Calif.

In total, more than 560 business groups, including the American Institute of CPAs, have signed the letter to lawmakers.

Specifically, the authors of the letter want Congress to enact legislation before the end of the year that includes a technical correction to address the tax treatment companies face when PPP loan balances are written off.

Congress has spent the week working out the details of the upcoming Covid relief plan.

Right now, a $ 908 billion emergency relief framework introduced by bipartisan lawmakers has the backing of Pelosi and Schumer.

This package sets aside $ 288 billion for the Paycheck Protection Program, a forgivable loan program established by the CARES Act.

PPP loan recipients are generally eligible for loan forgiveness if they use at least 60% of the proceeds to cover salary costs. Those who do not meet the threshold may be entitled to part of the wiped balance.

Although the cancellation of this loan is tax-exempt, the IRS has said borrowers cannot cancel expenses covered by a canceled PPP loan.

This would result in higher taxes unless Congress takes action, the business organizations said in their Dec. 3 letter to lawmakers.

“The effect of this move is to turn the tax-exempt loan forgiveness into taxable income, raising the specter of a surprise tax increase of up to 37% on small businesses when they file their loans. taxes for 2020, ”the business groups wrote.

PPP in the next round

The bipartite Covid proposal offers a second drawdown for PPP loans. It also ensures that aid recipients will not be taxed on the first round of forgivable loans and offers a simplified discount for loans under $ 150,000, Representative Josh Gottheimer, DN.J. said on Tuesday morning. at a press conference on Capitol Hill.

Gottheimer is among the lawmakers who crafted the bipartisan framework.

Meanwhile, a proposal from Senator McConnell does not mention deductibility, but does allow struggling businesses to benefit from a second injection of PPP funding.

It also extends reimbursable expenses to covered supplier costs and covered worker protection expenses.

The program – which has provided $ 525 billion in loans to more than 5 million businesses – encountered its share of challenges during the year, including the steady rollout of Treasury and Small Business Administration guidelines under the made of “Frequently Asked Questions. “

Deductible or not?

The offices of the Internal Revenue Service in Washington, DC

Adam Jeffery | CNBC

The question of whether borrowers can deduct expenses covered by the loan has also been a matter of contention in Washington.

The Treasury and IRS post was that since the loan forgiveness is tax free, borrowers cannot deduct the expenses. On the other hand, legislators have law Project which will allow radiation.

The Treasury and IRS said last month that business owners who “reasonably believe “ their PPP loans will be canceled can not deduct costs.

All of this has created more confusion for businesses: Not being able to deduct expenses could inflate their paper income and increase their tax bill, tax professionals said.

“We continue to hear from Crown CPA corporations, our members and CPA clients that the PPP loan has enabled them to pivot their businesses, stay open and keep employees hired during the pandemic,” said Edward Karl, Vice President of Taxation CPA and AICPA.

“PPP loans have helped organizations deal with issues such as supply chain disruptions, sick employees and changing customer buying habits,” he said. “Imposing potentially significant additional taxes on businesses at this time does not reflect Congress’ intention.”

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