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Don’t Count Out PPP Deductibility, Senate Republicans Say

Posted on Jul. 30, 2020

Senate Republicans haven't given up on including a measure that would allow deductions for Paycheck Protection Program (PPP) expenses.

While that provision is missing from the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act rolled out by Senate Republicans, Finance Committee member John Cornyn, R-Texas, remains bullish that his proposal to allow for the deductibility of PPP-affiliated loans continues to be under negotiation.

“I expect there to be bipartisan support for this measure and we’re going to continue to push for its inclusion,” Cornyn told Tax Notes July 29. The Treasury Department has opposed calls to make some business expenses paid for with forgivable loans deductible.

“Obviously, they [Treasury] think it’s a hit on the budget,” Sen. Marco Rubio, R-Fla., said. But Rubio, one of the architects of the small business loan program, told Tax Notes that the measure remains popular with his colleagues and that it may still be included in a final bill. “It’s a horse I would bet on,” he said.

Treasury’s opposition to Cornyn’s bill, the Small Business Expense Protection Act (S. 3612), has been a long-standing battle that prevented Cornyn from fast-tracking the legislation through the Senate during  the past two months. The IRS issued Notice 2020-32, 2020-21 IRB 837, in late April, preventing PPP loan recipients from deducting some related expenses. The notice received the full backing of Treasury Secretary Steven Mnuchin, who said businesses otherwise would be able to double dip by deducting expenses paid for with their forgivable loan.

Cornyn said it was the intent of lawmakers to allow businesses to realize additional cash flow by deducting those business expenses. He was backed by Senate Finance Committee Chair Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., in his appeal to the IRS. “This is a question for Congress and not for the administration,” Cornyn said.

A July 27 letter sent to Cornyn by the Joint Committee on Taxation shows that the nonpartisan agency took a view similar to that of many lawmakers. “The Joint Committee staff understood the intent of the legislation was not to deny deductions for qualifying expenses,” the letter said.

Cornyn’s optimism on including the provision in a final bill is understandable. Wyden told Tax Notes that while he is focusing on other provisions, such as unemployment insurance and funding for states, he continues to support the House-passed Health and Economic Recovery Omnibus Emergency Solutions  (HEROES) Act (H.R. 6800), which included a PPP deductibility provision. House Ways and Means Committee ranking member Kevin Brady, R-Texas, also appears to have softened his stance on the issue after saying in May that no “unified congressional intent” existed on the matter.

“The goal here is to help small businesses keep that cash on hand so they can keep their workers on the payroll . . . so I’m open to that conversation,” Brady told reporters on a July 29 call. Brady said he still has reservations, but that it is an issue worth exploring. “There could be a case for making this exemption,” he said.

A bipartisan group of House lawmakers also urged House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif., in a July 28 letter to make PPP deductibility part of any further negotiations.

“We respectively request the inclusion of legislation like the FIRST Act in any further COVID-19 relief package,” the letter said, referring to the Fixing the Income Ramifications for Small Businesses and Tax Relief Act (H.R. 6884). 

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