The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses survive during the early phases of the pandemic. Since enactment, over 5 million applicants have received forgivable PPP loans, protecting millions of jobs and allowing those businesses to stay afloat. In the CARES Act, Congress clearly intended to grant recipients of forgivable PPP loans the ability to deduct otherwise-deductible expenses associated with those loans for tax purposes. Loan forgiveness was clearly intended as tax-free to keep workers employed during the pandemic.
However, the IRS contradicted congressional intent by formally declaring that borrowers who expect their PPP loan to be forgiven cannot deduct the PPP expenses on their federal tax returns. Under the IRS interpretation, a business owner who use PPP proceeds to preserve payroll is unable to deduct the payroll and other ordinarily deductible expenses. Bills have been introduced in the Senate and in the House to fix this problem, but a solution could also be inserted into a much needed year-end federal stimulus package. Either way, it needs to happen quickly.
As active participants in the business community, we feel it is imperative to ensure that these same businesses are not subjected to additional and unexpected taxes as they continue to struggle to survive. It is obvious this pandemic is not yet over, and realization of Congressional intent will provide a much-needed indirect stimulus through tax savings to the business owners who need it most.
Borrowers eligible for PPP loan forgiveness have spent the funds as the program directed. If those businesses are not allowed to deduct these expenses, they may be forced to spend additional funds to pay taxes on the loan proceeds – funds they may not have. We feel that passing this legislation as quickly as possible will provide small business owners more certainty as they focus on year-end business planning which is especially important in these challenging economic times.
We strongly advocate the passage of legislation and urge immediate Congressional action to protect American businesses in these trying times.
Brian Calley, President, Small Business Association of Michigan; Bob Doyle, President and CEO, Michigan Association of Certified Public Accountants; Richard Lamb, President, Michigan Press Association
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