PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Critical PPP ‘Tax Deductibility’ Measure at Risk in COVID Relief Negotiations

By at 17 December, 2020, 9:21 pm

SBE Council’s Kerrigan Perplexed at Efforts to Impose Big and Unexpected Tax Hike on Struggling Small Businesses

For Immediate Release

Washington, D.C. – As Congress hashes out the remaining details of the “Emergency Coronavirus Relief Act of 2020,” a national small business advocate is imploring negotiators to leave intact a critical provision for small to mid-size businesses that has broad bipartisan support, which makes it clear that Paycheck Protection Program (PPP) forgiven expenses are tax deductible as intended by Congress in the original CARES Act.

Even after the Internal Revenue Service (IRS) and U.S. Treasury were informed by leaders in Congress that their “guidance” was wrong, and that PPP loan expenses once forgiven are deductible, it seems Treasury is not backing down and using every inside-the-beltway ploy to impose an unexpected and callous tax hike on Main Street businesses. As noted by Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan, if congressional negotiators allow such tactics to influence this critical provision – such as, for example, buying into the bizarre proposition that allowing only smaller-sized loan borrowers to deduct expenses (and taxing “higher” level PPP borrowers above $150,000), or disallowing deductibility so it could be used as an “offset” for additional relief programs – they would be selling out Main Street businesses, their workers and local economies.

“Congressional negotiators cannot abandon what was made clear in the CARES Act. PPP forgiven expenses are tax deductible, and millions of small to mid-size businesses took out loans to keep their employers on payroll and their operations going based on this language governing PPP. For some reason the Treasury will not back down and keeps pushing for the tax hike. However, Congress gets the last word and they better stick to their guns, duty, and bipartisan sentiment on this matter – as presented in the Problems Solvers Caucus bill. These forgiven expenses are tax deductible. Period. Millions of small businesses are looking to Congress for more capital and support to keep their businesses alive. They cannot absorb a big tax hike during the toughest moment of the pandemic,” said Kerrigan.

SBE Council recently joined 700 national and state business organizations in signing a letter to congressional leaders, urging Congress to enact legislation before the end of the year that includes more explicit language addressing the tax treatment of loan forgiveness under the PPP.  As noted in the text of the letter:

“Included in the CARES Act was a provision stating that any portion of a PPP loan that qualified for loan forgiveness ‘shall be excluded from gross income’ for tax purposes. This tax-free treatment of any forgiven loan amount was a key provision in the law and featured prominently in the debate leading up to and following the legislation’s enactment.”

Disallowing tax deductibility would amount to a surprise $120 billion tax hike on approximately 5 million businesses. SBE Council fully agrees with the S-Corp Association’s analysis on this issue: “Those employers were promised tax-free forgiveness when they applied for the loans, and that was what they understood when they spent the loan proceeds keeping their workers employed.…Tax-free treatment was consistent with the overall goal of the program – to give businesses the resources to keep workers employed during a time what their businesses were threatened by shut-downs and other responses to the pandemic.”

Kerrigan added that the surprise tax hike will be hitting many businesses at their toughest hour, and the whole point of this COVID legislative package is to provide relief and support to businesses to help them through what will be very tough months ahead:

“Every day, business owners face gut-wrenching uncertainty about whether their business will survive the pandemic, or even the week. Millions have already shuttered their doors and there will be many more closures to come. Congress cannot advance any measure that imposes surprise costs on any business, especially when owners are operating by the rules passed and intended by Congress.”

CONTACT: Karen Kerrigan, kkerrigan@sbecouncil.org

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 25 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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