Top Congressional Tax Writers Disagree with IRS Interpretation of Expenses Related to PPP Loans

Senate Finance Committee Chairman Chuck Grassley, ranking member Ron Wyden, and House Ways and Means Committee Chair Richard Neal, expressed disapproval of the recent IRS guidance regarding deductions for small businesses that receive a Paycheck Protection Program (PPP) loan.

ppp loanThe IRS released guidance, Notice 2020-32, stating that businesses cannot take deductions for expenses, including wages, if the payment of the expenses results in forgiveness of a PPP loan.

The Congressional tax writers sent a letter to Treasury Secretary Steven Mnuchin requesting to reverse the guidance, as it goes against congressional intent. The letter states, “We believe the position taken in the Notice ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients.”

“Providing assistance to small businesses, only to disallow their business deductions as provided in Notice 2020-32, reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income. This interpretation means that whatever income a small business is able to produce will be taxed on a gross basis to the extent of the loan forgiveness, leaving substantially less after-tax capital for the swift economic recovery we hope is on the horizon,” the tax writers wrote.

The PPP loan issue is expected to be addressed in the next round of economic relief legislation.

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