ICSC urges Congress to fix PPP deductibility issue

ICSC members are taking action to ask Congress to pass legislation to address the deductibility of business expenses paid with Paycheck Protection Program (PPP) loans. 

When Congress passed the PPP in the CARES Act in March, the law excluded any forgiven PPP amounts from taxation. The IRS, however, issued Notice 2020-32 explicitly denying deductions for businesses expenses paid with PPP grants in clear contradiction of what Congress intended.

The IRS’ rationale was to prevent a double benefit, i.e. a tax deduction for a tax-free grant. But the IRS got it wrong. If a business has $1,000 of PPP loans forgiven and excluded from its income, but then is required to add back $1,000 of denied business expenses, the result is the same as if the loan forgiveness was fully taxable, exactly what the law was trying to avoid.

A correction is included in the House HEROES Act (H.R. 6800), which passed the House on May 15. It has also been introduced in stand-alone legislation – the Small Business Expense Protection Act (S. 3612/H.R. 6821) – introduced by Sen. John Cornyn (R-TX) and Rep. George Holding (R-NC). Senate Finance Chairman Chuck Grassley (R-IA) and House Ways and Means Committee Chairman Richard Neal (D-MA) do not support a fix.

“The business environment is already uncertain enough with COVID-19,” ICSC Vice President of Tax Policy Phillips Hinch said. “Requiring a business to hold back PPP money to pay taxes is ludicrous. It should be going to support business operations and help pay employees. That’s what Congress intended.”

Click here to ask Congress to fix the PPP deductibility issue.