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ADA urges Congress to ask IRS to make Paycheck Protection Program expenses tax deductible

May 11, 2020

By Jennifer Garvin and Mary Beth Versaci

The American Dental Association and 152 other organizations are urging Congress to ask the Internal Revenue Service to allow expenses paid for with forgivable Paycheck Protection Program loan funds to be tax deductible.

In a May 7 letter to Rep. Richard Neal, D-Mass., chair of the House Committee on Ways and Means, and Sen. Chuck Grassley, R-Iowa, chair of the Senate Committee on Finance, the organizations told lawmakers that IRS Notice 2020-32 states "that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act."

The organizations noted that this is at odds with the intent of the CARES Act.

"It makes little sense to exclude an employer's [Paycheck Protection Program] loan forgiveness income from tax liability with the one hand, only to lose the same amount in deductions with the other hand," the coalition said in the letter. "With many businesses struggling to stay afloat, it is imperative that the rescue measures enacted by Congress, including [Paycheck Protection Program] loans, provide the maximum amount of flexibility to employers that they can."

The same day the coalition sent the letter to Rep. Neal and Sen. Grassley, the U.S. Department of the Treasury notified the lawmakers that it would take concerns they had shared about IRS Notice 2020-32 under consideration.

If the IRS does not reverse its decision, the organizations have asked lawmakers "to amend the CARES Act in future legislation that would explicitly waive Code Section 265 from applying to [Paycheck Protection Program] loan forgiveness."

For the latest information on all COVID-19 legislation, visit the ADA's Coronavirus (COVID-19) Advocacy webpage.