The IRS released regulations on April 30 which classified the expenses covered by the forgivable portion of a Paycheck Protection Program (PPP) loan as non-deductible business expenses. Tell your Member of Congress that if you are able to deduct these expenses, the PPP would contain a benefit much more powerful than loan forgiveness alone, allowing a truly tax-free benefit at a time that is critical for your business. Ask them to override the IRS ruling and support the viability of your small business.
TEMPLATE letter to Member of Congress:
[Month Day, Year]
The Honorable [First name Last name]
RE: IRS Notice 2020-32, guidance regarding the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan (covered loan) pursuant to the Paycheck Protection Program under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36).
Dear [Congressman/Senator Last name]:
My name is [your first and last name] and I am a small business owner who resides in your district. The Paycheck Protection Program (PPP) loan I received on [date of origination] has provided a lifeline to my small business and allowed our [__] employees to remain at work. However, with the April 30 IRS Notice 2020-32, what was promised to small businesses has changed dramatically.
IRS Notice 2020-32 takes the position that the forgivable portion of the PPP loan is non-deductible because it triggers IRS code section 265 which denies the deductibility of any expenses applicable to exempt income. As a result, the impact and value of the loan is significantly diminished. It also defies the intent of Congress, as has been publicly stated by Senator Grassley and Representative Neal.
If these forgivable PPP expenses are not deductible then in effect business owners are paying tax on this loan. For example:
- Business owner A incurs $100,000 of qualified expenses eligible for forgiveness
- The forgiveness of the $100,000 of PPP loan is tax free for federal income tax purposes.
- As result of the IRS Notice 2020-32 position, business owner A loses their deduction for the qualified payroll and overhead that is forgiven in the PPP loan.
- Accordingly, Business owner A is in the same position as if the loan forgiveness were taxable.
If we are able to deduct these expenses, the PPP would contain a benefit much more powerful than loan forgiveness alone, allowing a truly tax-free benefit at a time that is critical for our business.
I ask that you support action to override the IRS ruling and support small businesses.
[Home address if in different Congressional District or state]