Advocacy Commends Congress on Deductibility of Business Expenses Paid with Forgiven PPP Loans
Release No. 20-05 ADV
WASHINGTON, D.C. – Today, the Office of Advocacy, an independent office within the U.S. Small Business Administration, commended Congress on creating a legislative fix to the CARES Act that allows small businesses to deduct business expenses paid with forgiven Paycheck Protection Program (PPP) loans. The change was signed into law by President Trump on December 27, 2020.
The CARES Act provided for forgiveness of PPP loans that were used to cover payroll and other enumerated expenses, and specifically stated that a forgiven PPP loan was not taxable income. However, the IRS published guidance that stated otherwise deductible business expenses paid with forgiven PPP loans were not deductible because they came from a class of tax-exempt income: a forgiven PPP loan. Congress informed Treasury directly that its position was contrary to the congressional intent of the PPP, and the tax community and small business stakeholders also voiced their concerns with the agency’s position. Advocacy, in turn, conveyed the need for a legislative fix for the issue to the House and Senate Small Business Committees in a letter dated December 15, 2020.
With the passage of the COVID-Related Tax Relief Act of 2020, Congress codified its original intent, clarifying that business expenses paid with forgiven PPP loans are deductible. This fix, which Advocacy encouraged, provides clarity and relief to American small businesses during a particularly arduous time. Doing so prevents small businesses from facing unbudgeted tax increases for 2020 as they begin to recover from the effects of the COVID-19 pandemic.
“Advocacy is pleased that Congress has corrected this important issue in the latest stimulus,” said Acting Chief Counsel Major L. Clark III. “This will save millions of small businesses from increases in tax liabilities during this challenging time.”