AICPA mobilizes members to push for deductibility of PPP-funded expenses

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AICPA mobilizes members to push for deductibility of PPP-funded expenses

In the wake of the IRS’s latest guidance denying a tax deduction for any otherwise deductible expense if the payment of the expense results in forgiveness of a Paycheck Protection Program (PPP) loan because the income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the AICPA is mobilizing its membership to reach out to members of Congress to support a bill that clearly mandates deductibility.

Under Section 1106(b) of the CARES Act, an eligible recipient of a covered PPP loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses during the covered period beginning on the covered loan’s origination date: (1) payroll costs; (2) any payment of interest on any covered mortgage obligation; (3) any payment on any covered rent obligation; and (4) any covered utility payment. Section 1106(i) excludes from gross income any amount forgiven under the PPP.

In May, the IRS issued Notice 2020-32, providing that a taxpayer that receives a loan through the PPP is not permitted to deduct expenses that are normally deductible under the Code to the extent the payment of those expenses results in loan forgiveness under the CARES Act. The IRS amplified that position last week in Rev. Rul. 2020-27 and Rev. Proc. 2020-51.

The AICPA believes that the IRS’s interpretation denying deductions of expenses forgiven under the PPP is contrary to Congress’s intent and has continually advocated for legislation that would clarify that the receipt and forgiveness of assistance through the PPP does not affect the deductibility of ordinary business expenses. Specifically, the AICPA supports the passage of S. 3612 and of H.R. 6821, Small Business Expense Protection Act of 2020, or of H.R. 6754, Protecting the Paycheck Protection Program Act of 2020.

The AICPA is now asking its members to contact their representative or senators to urge that the House of Representatives and the Senate include this legislation in any year-end must-pass bill. It is providing language members can use in writing to their senators and representatives in the hopes that the Institute’s more than 400,000 members can help influence Congress to act.

The AICPA submitted letters to Congress on May 28, 2020, in support of H.R. 6754 and H.R. 6821, and on July 20, 2020, and Aug. 4, 2020 (with a coalition of organizations), urging inclusion of PPP expense deductibility in the next coronavirus relief legislation.

Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor in chief, tax.

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