Carper, Cornyn, Grassley, Wyden, Rubio Introduce Bill to Clarify Small Business Expense Deductions Under PPP

Bill Would Clarify that Expenses Paid with Forgiven PPP Loan are Tax-Deductible

WASHINGTON, D.C. – Today, U.S. Senators Tom Carper (D-Del.), John Cornyn (R-TX), Finance Committee Chairman Chuck Grassley (R-IA), Finance Committee Ranking Member Ron Wyden (D-OR), and Small Business Committee Chairman Marco Rubio (R-FL) introduced the Small Business Expense Protection Act, which would clarify the Small Business Administration’s Paycheck Protection Program (PPP) so small businesses can deduct expenses paid with a forgiven PPP loan from their taxes.

“Delaware small businesses that are the backbone of our economy have been hit hard by this unprecedented pandemic and need relief now,” said Sen. Carper. “Congress provided this relief through the Paycheck Protection Program, which gives small businesses a lifeline so that they can keep workers on payroll and pay rent and other necessary expenses while they weather the crisis. Our intention when creating this program was not to give assistance with one hand and take away ordinary business deductions with the other. Today, I am proud to join Senators Cornyn, Grassley, Wyden, and Rubio in introducing the bipartisan Small Business Expense Protection Act, a bill that would ensure small businesses in dire straits through no fault of their own aren’t hit with an unexpected tax bill when they receive much-needed federal relief.”

“The Paycheck Protection Program has been a lifeline to small businesses in Texas during the coronavirus pandemic,” said Sen. Cornyn. “This legislation would erase any confusion by clarifying that expenses paid with a forgiven PPP loan can still be deducted from small businesses’ taxes.”

“When we developed and passed the Paycheck Protection Program, our intent was clearly to make sure small businesses had the liquidity and the help they needed to get through these difficult times. Unfortunately, Treasury and the IRS interpreted the law in a way that’s prevented businesses from deducting expenses associated with PPP loans. That’s just the opposite of what we intended and should be fixed. This bill will do just that,” Chairman Grassley said.

“Treasury’s guidance barring deductions for expenses paid by PPP loans is a gut punch for businesses struggling to stay afloat. It defies commonsense for Treasury to provide help on the front end, but then take it away on the back end. Our bipartisan bill would fix this mistake and ensure businesses feel confident using PPP funds to keep their workers employed,” said Sen. Wyden.

“The congressional intent of the PPP program was to keep workers connected to their jobs and to ease the financial burden on small businesses so they could weather this pandemic,” Chairman Rubio said. “Borrowers should not be penalized by new taxes because they sought help during this unprecedented crisis. I appreciate my colleagues Senator Cornyn and Chairman Grassley, as well as Senator Carper and Ranking Member Wyden for introducing this bill to rectify IRS’s ruling.”

Background:

The intent of the Paycheck Protection Program, which was created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was to maximize small businesses’ ability to maintain liquidity, retain their employees, and recover from the pandemic as soon as possible. Last Thursday, the IRS issued a notice that said small businesses cannot deduct these business expenses. This notice is contrary to congressional intent. 

The Small Business Expense Protection Act is supported by the American Institute of Certified Public Accountants (AICPA).

The Paycheck Protection Program is an invaluable asset to small businesses experiencing the negative financial impacts of the coronavirus. According to the Small Business Administration,  more than two million loans amounting to more than $175 billion have been made to small businesses since Round 2 of PPP loan processing began on April 27, surpassing the number of all loans made in the first round of PPP loans. The average loan size in Round 2 was estimated at $79,000, and almost 500,000 of the loans were made by lenders with less than $1 billion in assets and non-banks.  

Since this program began, the SBA has processed more than 3.8 million loans totaling more than half a trillion dollars of economic support.