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Coalition calls for business expenses paid for with PPP to be deductible

July 08, 2020

By Jennifer Garvin

Washington — The ADA and a group of stakeholders are calling on Congress to correct a “misinterpretation” of the Coronavirus Aid, Relief, and Economic Security Act that does not allow businesses who received a Paycheck Protection Program loan to deduct expenses paid for with loan funds if the loan is subsequently forgiven.

In a July 1 letter to leaders of the Senate, the coalition urged lawmakers to support the bipartisan Small Business Expense Protection Act, reminding them that the Paycheck Protection Program “was designed to help small businesses survive major liquidity shortfalls, retain employees and withstand an unprecedented economic disruption” as a result of the COVID-19 pandemic.

However, the original intent of the Paycheck Protection Program is undermined by the Internal Revenue Service’s Notice 2020-32, which says “normally deductible business expenses will not be deductible if the business pays the expense with a Paycheck Protection Program loan that is subsequently forgiven,” creating a severe challenge for small businesses.

The groups pointed out that within Section 1106(i) of the CARES Act, “congressional intent was clear,” where it states, “any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness” and “shall be excluded from gross income,” for purposes of the Internal Revenue Code of 1986.

“The Small Business Expense Protection Act will fix this misinterpretation and reestablish the ability of small businesses that have received Paycheck Protection Program loans to deduct business expenses as the CARES Act intends,” the letter concluded. “We thank Congressional leaders for their ongoing efforts and urge swift passage of this bipartisan legislation.”

For more information about the ADA’s advocacy efforts during COVID-19, visit ADA.org/COVID19Advocacy.