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Double-Dipping Concerns Halt PPP Deductibility Bill

Posted on June 5, 2020

Senators concerned about double dipping blocked the fast-tracking of a measure that would allow businesses to deduct Paycheck Protection Program-associated expenses.

Senate Finance Committee member John Cornyn, R-Texas, told reporters June 4 that he attempted to “hotline” the bill earlier in the day but got resistance from some senators.

Still, Cornyn said he is gathering support from his colleagues to approve the Small Business Expense Protection Act of 2020 (S. 3612) by unanimous consent. “We’re getting more and more cosponsors, but we have to work our way through one or two last holds,” he said.

Cornyn introduced the bill in May after the IRS clarified in Notice 2020-32, 2020-21 IRB 837, that expenses paid by PPP loans can’t be deducted. Under the PPP, created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), the Small Business Administration provides loans to small businesses that can be forgiven on a tax-free basis as long as a specific portion is used for payroll costs during the covered period.

Lawmakers led by Finance Committee Chair Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., called on the IRS to retract its notice or provide further guidance indicating that Congress intended for the associated expenses to be tax deductible. But that stance was rebuked by Treasury Secretary Steven Mnuchinwho said he personally reviewed the guidance and that allowing for deductibility would give companies the chance to double dip.

That view is shared by some senators who are objecting to the bill’s passage, according to Cornyn, who said he disagrees with Mnuchin. “The whole goal is to get them some money to ride this thing out,” he said.

Sen. Marco Rubio, R-Fla., one of the PPP’s main architects, believes Cornyn’s bill would allow companies to double dip but said that doesn’t bother him. “In the environment that we’re in, we should make the assumption that we want to make it as easy for businesses to survive and as easy as possible for them to do their taxes,” he said.

The attempt to fast-track S. 3612 came a day after the Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) by unanimous consent. That bill would give businesses 24 weeks — instead of just eight — to use PPP loan money and still qualify for forgiveness. It also would reduce the threshold for the amount of loan money required to be spent on payroll from 75 percent to 60 percent.

Despite overwhelming agreement that fixes to the PPP were necessary, H.R. 7010 stalled for a few days because of alleged mistakes in the measure that could hurt small business owners.

Wyden told Tax Notes that the PPP deductibility bill could face similar hurdles as negotiations continue. “You saw how hard it was to pass the bill yesterday,” he said.

PPP Changes in the Making

The PPP deductibility measure also could be used as a vehicle to fix other problems with the program.

Sen. Susan M. Collins, R-Maine, said she is working on a bill that she hopes to introduce the week of June 8. That bill is expected to address concerns that businesses that don’t use 60 percent of the loans for payroll could be barred from having their loans forgiven. 

“The House bill contains a cliff: even if a small employer spent 59% out of the 60% of the funding designated to pay their employees, none of the loan would be forgiven. The employer would be saddled with debt,” Collins said in a statement.

Senate Finance Committee member Benjamin L. Cardin, D-Md., agreed that something needs to be done about that potential problem. “That’s a ridiculous interpretation, and we might have to put something in the bill,” he told Tax Notes.

Collins also wants loans to be used by businesses to purchase protective gear for their employees and make necessary renovations to meet Centers for Disease Control and Prevention guidelines.

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