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‘Tax 101’: Mnuchin Defends Nondeductibility of PPP Expenses 

Posted on May 5, 2020

Treasury Secretary Steven Mnuchin is defending IRS guidance stating that expenses associated with the Paycheck Protection Program (PPP) aren’t deductible, even as top congressional taxwriters plan to override that guidance legislatively.

“The money coming in the PPP is not taxable,” Mnuchin said May 4 in an interview on Fox Business. “So if the money that's coming is not taxable, you can't double dip.”

In Notice 2020-32, 2020-21 IRB 1, issued April 30, the IRS said that deductions aren’t allowed for expenses that would otherwise be deductible if the payment of those expenses results in forgiveness of a PPP loan and the income associated with the forgiveness is excluded from gross income. The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136).

The notice came after weeks of debate in the tax community on whether the loan proceeds that were used to fund ordinary business expenses that could typically be deducted under sections 162 and 163 could still be written off.

Mnuchin said the IRS guidance is correct, adding, “I have reviewed this personally. This is basically Tax 101.”

But congressional lawmakers have a different view on how the IRS should be treating expenses associated with the PPP. Senate Finance Committee Chair Chuck Grassley, R-Iowa, previously said that the notice was contrary to the congressional intent behind the CARES Act. On May 4 he said he plans to introduce legislation on the issue.

“We’re going to put a bill in on that,” Grassley told reporters.

House Ways and Means Committee Chair Richard E. Neal, D-Mass., said May 1 that he also intends to ensure that PPP-related expenses are deductible as part of the next coronavirus relief legislation.

Senators returned to Washington May 4 to begin work on the next relief package. Democrats have made it clear that funding states will be a priority, a demand that is likely to face pushback from Republicans. Meanwhile, President Trump has said that he will insist on a payroll tax cut as part of the next bill.

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