May 21, 2020

Legislation Would Allow Deductions for Expenses Paid by PPP Loans

One component that has lessened the value of the Paycheck Protection Program (PPP) is the IRS guidance that prohibits otherwise deductible business expenses when a company pays for that expense using a forgiven PPP loan.

That rule appears to be contrary to the intent of the CARES Act, which established the PPP program. The CARES Act states that any amount forgiven by a PPP loan “shall be excluded from gross income.” Still, the IRS so far has held firm on its guidance regarding deductions.

To reverse this decision, Sen. John Cornyn (R-TX) introduced an amendment to the CARES Act that would allow organizations to take tax deductions for ordinary business expenses if they were paid for by loan forgiveness received in response to COVID-19. The U.S. Chamber of Commerce this week sent a letter to congressional leaders supporting passage of Cornyn’s Small Business Expense Protection Act because it “would allow the customary deduction of business expenses for small business recipients of Paycheck Protection Program loans.”

“The Small Business Expense Protection Act would restore the ability of small businesses that have received PPP loans to deduct business expenses even if the expenses were paid out of PPP proceeds, freeing up much-needed capital on Main Street,” wrote Neil Bradley, executive vice president and chief policy officer for the U.S. Chamber.

To view the full letter from the U.S. Chamber, please click here. Remember to urge your representatives and senators to support this bill as well.