November 16, 2020

Tax Deduction Issue Remains; Court Orders Disclosure of Borrower Info

Summarized from Jade West, National Association of Wholesaler-Distributors

As you know, the IRS ruled earlier this year that otherwise-tax-deductible expenses that are paid with a forgiven Paycheck Protection Program (PPP) loan will not be deductible. This ruling is in direct conflict with the statute, which clearly said PPP loans would not be taxable. NAW and its trade association colleagues have been working with allies in the House and Senate to pass legislation that would reaffirm statutory intent and reverse the IRS ruling. The NAW has also communicated with the SBA and Treasury urging that the IRS ruling be rescinded, but with no success – Secretary Steven Mnuchin has been truly “dug-in” on this issue.

The NAW is still actively lobbying for Congressional action on this and hope Congress will pass a COVID-19 bill in the lame-duck session that includes the Cornyn bill, which would reverse the IRS ruling.

In the interim, however, Treasury and the IRS appear to be moving in the wrong direction on this. As Tax Notes reported last week:

Treasury officials told (Edward S. Karl of the American Institute of CPAs) they anticipated issuing additional guidance before the end of the year, and possibly by the end of November, generally stating that if a borrower has a reasonable expectation of loan forgiveness, the expenses can’t be deducted to the extent they’re paid for with the loan. That’s true regardless of when the loan is forgiven …

While the progress on the tax deduction question remains in limbo, the SBA and Treasury continue to make other changes to the PPP program. The issue of whether to publicly disclose information about PPP loans and borrowers was heatedly debated this past summer, however, it seemed to be resolved when the SBA and Treasury released the names of PPP borrowers, but provided information on the size of the loans in ranges rather than specific amounts, and announced that they would treat as confidential more detailed information. Unfortunately, last week the District Court for the District of Columbia ruled that the SBA must release – by Nov. 19 – names and addresses of all PPP and Economic Injury Disaster Loan (EIDL) borrowers and the exact amount of those loans. The SBA said last week that they had not decided whether to appeal that decision.

The NAW has pursued this with the SBA but have not been told whether they have yet made that decision. 

You can read a detailed story about this decision here, and the actual court decision is here.