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Brady Casts Doubt on PPP Loan Deduction, Backs Payroll Tax Cut

Posted on May 14, 2020

The highest-ranking Republican taxwriter in the House appeared to side with the Trump administration on resisting making costs associated with small business loans tax deductible while also backing the White House on a payroll tax cut.

House Ways and Means ranking member Kevin Brady, R-Texas, told reporters May 13 that there was no “unified congressional intent” to make business expenses associated with the Paycheck Protection Program (PPP) deductible. “Had there been a consensus, it would have been stated in that program itself,” Brady said.

Brady didn’t sign a letter written by his Senate counterpart, Finance Committee Chair Chuck Grassley, R-Iowa, urging the IRS to reconsider a notice (Notice 2020-32, 2020-21 IRB 1) preventing businesses from taking a deduction on costs associated with the PPP loans. “I didn’t sign on to the letter because it was inaccurate,” Brady said.

Finance Committee ranking member Ron Wyden, D-Ore., and Ways and Means Chair Richard E. Neal, D-Mass., also signed the letter to Treasury Secretary Steven Mnuchin.

Brady’s view that the congressional intent of the PPP provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) does not necessarily allow for deductions mirrors that of Mnuchin, who has said the IRS’s stance is “Tax 101.” Brady, however, did leave open the possibility for Congress to make PPP-associated expenses deductible if it can come to an agreement on the issue.

But that may be too late if the IRS listens to lawmakers insisting that the agency retract its prior notice or issue a new one. Grassley said he recently spoke with Mnuchin on the issue. “He said he’d go back and talk to his staff about it,” Grassley told Tax Notes.

Backing the White House

Brady also agreed with the White House on a temporary payroll tax cut, despite telling reporters that he’s traditionally been against temporary tax proposals. “I believe the White House should consider suspending the payroll tax for workers through the end of the year,” he said, adding that it would act as “an immediate 7 percent pay raise for workers.”

The payroll tax cut has been part of broader negotiations involving Brady and a coalition of Republicans who want the White House to adopt measures to provide credits to companies reconfiguring their offices and outfitting themselves with protective gear. The idea has the backing of the Retail Industry Leaders Association, which proposed such an incentive in a letter to congressional leaders.

Brady also backed a White House push to make permanent the temporary full expensing provision in the Tax Cuts and Jobs Act. A group of Republican Ways and Means Committee members introduced the Accelerate Long-term Investment Growth Now (ALIGN) Act (H.R. 6802) May 13, which would make the TCJA provision permanent.

Moving Critical Production Onshore

Brady elaborated on a Republican initiative to provide U.S. companies that make critical personal protective equipment and medicines with incentives to move their overseas operations back to the United States. Republicans have said they don’t want to rely on foreign countries for those products, and House Minority Leader Kevin McCarthy, R-Calif., said in recent calls with the press that the current crisis has strengthened the need for domestic production of necessities.

Brady said the proposal focuses on the need for the United States to be more “medically independent.”

“We put together a targeted tax incentive [package] to accelerate the creation of production lines here in the U.S.,” Brady said. The incentives would focus on lower tax rates, doubling the research credit, and eliminating the TCJA’s amortization provision.

Grassley said such an approach would be important for the healthcare and pharmaceutical industries but would leave it up to companies to make the business decisions.

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