Congressman Tim Ryan Presses Congressional Leadership to Ensure Small Businesses with PPP Loans Remain Eligible for Tax Deductions | Congressman Tim Ryan
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Congressman Tim Ryan Presses Congressional Leadership to Ensure Small Businesses with PPP Loans Remain Eligible for Tax Deductions

December 10, 2020
Press Release

Washington, DC – Congressman Tim Ryan (OH-13) today called on Congressional leadership to restore the tax deductibility of forgiven Paycheck Protection Program (PPP) loans for small businesses in any end-of-year COVID-19 relief legislation. In a bipartisan letter with more than 170 House members, Congressman Ryan offered this fix to avoid surprise tax bills for those small businesses who utilized the PPP program throughout this year, which was a clear intention of the program as outlined in the CARES Act. Currently the IRS is disallowing small businesses to deduct the forgiven PPP expense on their 2020 returns.

“We have to prioritize helping working-class people, and working-class people are small business owners. The Paycheck Protection Program was meant to keep these folks afloat – not make it harder for them down the road with a big surprise tax bill,” said Congressman Tim Ryan. “Not only will protecting our small businesses help the business owners, it will help waiters, store clerks, and countless others who work at small businesses remain employed during this difficult time. This fix is a key to making sure hard-working Americans are still on their feet as we come out of this pandemic.”

 In their letter, the members wrote: “Without Congressional action, small businesses are estimated to pay over $120 billion in taxes on forgivable PPP loans. At a time when many are struggling to keep their doors open each day, we cannot saddle small businesses with a massive surprise tax bill.  For this reason, we ask that you include a fix to clarify that recipients of forgivable PPP loans can claim normal business expense deductions in any end-of-year legislation.”

Congress enacted the Paycheck Protection Program (PPP) to provide more than $600 billion for forgivable loans to small businesses to help keep employees on payroll and continue operating. Since its enactment, over 5 million loans have been made to businesses in all fifty states. This program has helped keep our economy from total collapse by providing a lifeline to small businesses with no alternative funding source.

The PPP was intended to provide vital tax-free assistance for certain business costs in unprecedented economic circumstances. Congress specifically included Section 1106(i) in the CARES Act to exclude forgivable loan assistance from taxable income. On April 30, however, the Internal Revenue Service (IRS) released Notice 2020-32 disallowing the deduction of forgiven expenses. This notice is contrary to Congressional intent. Section 1106(i) of the CARES Act was put in place specifically to ensure forgivable loan proceeds would be tax free, stating that “any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.” Notice 2020-32 essentially ignores this section and effectively makes forgivable loans taxable despite Congress’s clear intent to allow the deduction of necessary business expenses.

This clear fix to ensure the tax-deductibility of PPP loans was included in part of the Heroes Act – which was passed most recently by the House on October 1, 2020  and awaits consideration in the Senate.

Today’s letter calls on Congressional leadership to ensure that this critical protection for small businesses remains in any end-of-year COVID-19 relief legislation.

Read the full text of the letter here and below.

Dear Speaker Pelosi, Leader McCarthy, Leader Hoyer, and Whip Scalise, 

Thank you for your continued efforts to provide assistance to the American people through these challenging times. As we continue working on additional coronavirus assistance measures, we want to bring your attention to an important issue affecting small businesses across the United States and ask for your help in providing much-needed relief. 

Over the past few months, statewide shutdowns in response to the pandemic have had devastating effects on small businesses throughout the country. Thousands of small businesses have permanently closed, while capacity restrictions and reopening costs have drastically cut revenue streams for those that have remained open. 

In response to these dire economic conditions, Congress enacted the Paycheck Protection Program (PPP) to provide more than $600 billion for forgivable loans to small businesses to help keep employees on payroll and continue operating. Since its enactment, over 5 million loans have been made to businesses in all fifty states. This program has helped keep our economy from total collapse by providing a lifeline to small businesses with no alternative funding source.

The PPP was intended to provide vital tax-free assistance for certain business costs in unprecedented economic circumstances. Congress specifically included Section 1106(i) in the CARES Act to exclude forgivable loan assistance from taxable income. On April 30, however, the Internal Revenue Service (IRS) released Notice 2020-32 disallowing the deduction of forgiven expenses. 

As Chairman Grassley, Chairman Neal, and Ranking Member Wyden wrote in a letter to Secretary Mnuchin on May 5, 20201, this notice is contrary to Congressional intent. Section 1106(i) of the CARES Act was put in place specifically to ensure forgivable loan proceeds would be tax free, stating that “any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.” Notice 2020-32 essentially ignores this section and effectively makes forgivable loans taxable despite Congress’s clear intent to allow the deduction of necessary business expenses. 

To make matters worse, on November 18, 2020, the IRS released Revenue Ruling 2020-27 stating that PPP recipients who had not even received or applied for forgiveness could not deduct normal business expenses if they reasonably expected their loans to be forgiven. 

These notices are not only contrary to Congressional intent, but in fact changed the terms of the loan after a majority of PPP applicants had already applied for and received funds. Over 84% of total PPP applications were submitted prior to April 17, when the program first expired. This unfairly changed the rules of the program after the overwhelming majority of participants had joined. 

Without Congressional action, small businesses are estimated to pay over $120 billion in taxes on forgivable PPP loans. At a time when many are struggling to keep their doors open each day, we cannot saddle small businesses with a massive surprise tax bill. 

For this reason, we ask that you include a fix to clarify that recipients of forgivable PPP loans can claim normal business expense deductions in any end-of-year legislation. Thank you for your consideration of this request. 

Sincerely,

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