In May of this year, the Internal Revenue Service (IRS), in coordination with the U.S. Department of the Treasury, issued Notice 2020-32, which provides that otherwise deductible business expenses are not deductible if the taxpayer is the recipient of a Paycheck Protection Program (PPP) loan that is subsequently forgiven. On November 18, 2020, the IRS issued Rev. Rul. 2020-27, strengthening its position. This rule creates an incredible tax burden on small businesses, many of which continue to struggle amid the ongoing Coronavirus pandemic.
Section 1106(b) of the CARES Act indicates PPP loans are eligible for forgiveness if borrowers meet certain conditions. While the CARES Act does not directly address whether expenses paid by PPP loans that are ultimately forgiven are deductible for the year in which they were paid, Price Kong, along with the American Institute of Certified Public Accountants (AICPA), is of the opinion that the IRS’s interpretation is contrary to Congress’s intent of forgiveness under the PPP. Senators Chuck Grassley and Ron Wyden, the top Republican and Democrat on the Senate Finance Committee, also believe that the new guidance limits tax breaks for businesses that get their PPP loans forgiven.
WHAT YOU CAN DO
We urge you to contact your senators and representatives to advocate that the Senate and House of Representatives address this issue immediately. Lawmakers are working to include language in year-end legislation that clearly states eligible expenses covered by PPP loans will be deductible, regardless of whether the loan is forgiven. Congress has until December 11, 2020 to approve government spending legislation, so it is imperative that you act today to help ensure this important legislation is passed before the end of the year.
To assist you with the process, we created a letter template that can be easily downloaded and edited, as well as a map of districts and contact information for Arizona’s U.S. Senators and Representatives. To help push for this legislation by year’s end, we recommend sending your letter via email to the appropriate representative and/or senator.
Price Kong is here to assist. If you have questions about the letter template, or would like to further discuss the impact of this rule on your business, please contact us at [email protected] or 602.776.6300.