ATR President Grover Norquist today released a letter in support of S. 3612, the “Small Business Expense Protection Act.”
This legislation has been introduced by Senator John Cornyn (R-Texas), Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Finance Ranking Member Ron Wyden (D-Ore.), Senator Tom Carper (D-Del.), and Senate Small Business Committee Chairman Marco Rubio (R-Fla.).
This legislation restores congressional intent over the Paycheck Protection Program (PPP) by allowing small businesses to deduct business expenses paid using loans received through the program.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to provide small businesses impacted by COVID-19 with emergency liquidity so they could continue making payroll and meeting other business expenses.
However, on April 30, the IRS released Notice 2020-32, which prohibited businesses from deducting expenses paid with a PPP loan such as payroll, rent, and utility expenses, even though these expenses would otherwise qualify as ordinary, tax deductible business expenses.
Denying the ability of small businesses to deduct expenses paid with PPP loans will impose an additional tax burden on these businesses that will erode a portion of the financial assistance granted through the program. This will only harm small businesses across the country as they attempt to survive and re-engage in commerce in the wake of the pandemic. A recent second tranche of PPP loans averaged just $79,000 per business, so the financial assistance businesses receive is relatively modest.
The IRS Notice clearly disregards Congressional intent as Section 1106(i) of the CARES Act clearly states that any PPP loan should be exempt from taxation if such loan is forgiven. Further, Congressional leaders from both sides of the aisle recently urged Treasury to reverse course, noting that the IRS 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.”
Congress should pass the Small Business Expense Protection Act. This legislation will uphold Congressional intent by allowing small businesses to deduct business expenses paid by PPP loans, a measure that will ensure businesses do not face additional taxation from COVID-19 relief measures.
See the full letter here.