This week, the Big “I" joined organizations in sending two letters urging Congress to expedite action on the Paycheck Protection Program and to expand loans to cover small businesses structured as 501(c)6 organizations.
This week, the Big “I" joined a number of organizations in sending two letters to congressional leaders regarding the Paycheck Protection Program (PPP).
The first letter touched on several PPP-related issues but starts by asking Congress to expeditiously enact legislation that would allow businesses to access a “second draw" PPP loan. Importantly for our state associations, the letter also argues that Congress should expand PPP loans to cover small businesses that are structured as 501(c)6 organizations and were left out of the original PPP.
The letter also calls on Congress to streamline the loan forgiveness burden for recipients of PPP loans totaling $150,000 or less by including the “Paycheck Protection Small Business Forgiveness Act" (S. 4117/H.R. 7777) in any relief measure that advances. Finally, the letter urges Congress to enact full tax deductibility for PPP loans, which the Big “I" believes is consistent with congressional intent.
The second letter the Big “I" sent to Capitol Hill this week focuses solely on the tax deductibility issue and strongly urges Congress to pass legislation before the end of the year that includes a technical correction addressing the tax treatment of loan forgiveness under the PPP. A provision included in the CARES Act states that any portion of a PPP loan that qualified for loan forgiveness “shall be excluded from gross income" for tax purposes. This tax-free treatment of any forgiven loan amount was a key provision in the law and featured prominently in the debate leading up to and following the legislation's enactment.
Despite this clear intent, the Internal Revenue Service issued Notice 2020-32, which specified that “no deduction is allowed under the Internal Revenue Code…if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the [CARES Act]." The effect of this ruling is to transform tax-free loan forgiveness into taxable income, raising the specter of a surprise tax increase of up to 37% on small businesses when they file their taxes for 2020.
The letter notes that Congress must act during the lame-duck session to prevent this avoidable catastrophe for millions of small businesses.
Although congressional action before the end of the year on these important issues remains uncertain, the Big “I" will continue strongly advocating for our small business members and their clients.
Wyatt Stewart is Big “I" assistant vice president of federal government affairs.