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Relief Bill to Be Paired With Spending Package

Posted on Dec. 16, 2020

Lawmakers are racing to combine a relief bill that extends the Paycheck Protection Program with a large spending package to avert a government shutdown.

Senate Majority Leader Mitch McConnell, R-Ky., is adamant that lawmakers won't be going home for the holidays if they fail to pass a relief bill. “We’re not leaving without a COVID package,” McConnell told reporters December 15.

McConnell met with Senate Minority Leader Charles E. Schumer, D-N.Y.; House Speaker Nancy Pelosi, D-Calif.; and House Minority Leader Kevin McCarthy, R-Calif., to discuss combining an omnibus spending package to keep the government open beyond December 18 with a much-needed economic relief package. The spending package would also give lawmakers a chance to include expiring tax provisions, such as the tax break for brewers and distillers set to expire at the end of 2020. 

A day earlier, a group of Senate and House lawmakers unveiled two separate relief bills, one of which is more likely to be added as an amendment to the omnibus spending package.

Lawmakers led by Sens. Joe Manchin III, D-W.Va., and Susan M. Collins, R-Maine, introduced the Emergency Coronavirus Relief Act of 2020, which would extend the Paycheck Protection Program and unemployment benefits and increase funding for distribution of COVID-19 vaccines. It would also allow businesses to deduct expenses paid for with PPP loans that are later forgiven.

The second bill includes more contentious provisions that haven't won bipartisan support, including state and local government aid and limited liability protection proposed by McConnell. Some lawmakers, such as Senate Democratic Whip Richard J. Durbin of Illinois, say they are prepared to move ahead without those two provisions. 

PPP Deductibility Gets the Nod

Business groups were relieved to learn that the relief package includes language from a bill by Senate Finance Committee member John Cornyn, R-Texas, that would allow businesses to deduct PPP-affiliated expenses. The small business loan program, which has been the most successful provision of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), has won universal support in Congress and throughout the business community. But lawmakers and trade groups fear that not allowing businesses to deduct expenses paid for with PPP loans would lead to surprise costs in the following year.

As congressional leaders met to discuss attaching the relief package to an omnibus spending bill before the end of the week, the National Federation of Independent Business warned Congress to keep language clarifying the handling of business expenses with PPP loans in the final version of the bill.

“Efforts to keep this surprise tax increase in place is misguided and harmful to the small business economy that employs nearly half of all private sector workers,” NFIB President Brad Close said in a statement.

Treasury Secretary Steven Mnuchin, who joined the leadership discussions by phone, could be the provision’s biggest hurdle. Earlier this year, Mnuchin said that allowing businesses to deduct expenses associated with forgiven PPP loans was akin to double dipping, and Treasury released guidance (Notice 2020-32, 2020-21 IRB 837) clarifying that stance.

The legislative text in the proposed Emergency Coronavirus Relief Act clarifying the treatment of business expenses satisfied business groups. Some practitioners warned that a section on applicability would limit deductibility and hurt fiscal-year filers by denying them deductions if they had already filed their tax returns.

But that's not the case, according to Edward Karl, vice president of taxation at the American Institute of CPAs. “I had a number of people reach out to me about that,” Karl told Tax Notes. He said the applicability refers to the sections on “Allowable Use of PPP Loan” and “Loan Forgiveness” — not to the section on “Clarification of Treatment of Business Expenses.”

The AICPA, along with a number of other organizations and business groups, has been lobbying Congress for months to include a clarification of the handling of business expenses.

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