In a newsworthy request, 172 trade groups, including the American Bakers Association, sent a letter to Speaker of the House of Representatives Nancy Pelosi and Senate Majority leader Mitch McConnell to restore tax-free loan forgiveness under the Paycheck Protection Program. The technical correction addresses the tax treatment of loan forgiveness in the next COVID stimulus package.
When Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, PPP loans were eligible for forgiveness of indebtedness for amounts equal to certain payroll, mortgage interest, rent, and utility payments made during a prescribed period, with any resulting cancelled indebtedness excluded from the borrower’s taxable income.
However, Treasury’s IRS Notice 2020-32 effectively overturned this policy by denying these borrowers the ability to deduct the same expenses that qualified them for the loan forgiveness. In addition to a bi-partisan letter to Treasury Secretary Mnuchin from the Chairmen of the House and Senate tax writing committees asking him to correct the issue and follow the intent of Congress , the Small Business Expense Protection Act was introduced in the House and Senate, with broad bi-partisan support.
The bill was included in the House of Representative’s most recent coronavirus stimulus package, but was not included in the Senate’s legislation, which was introduced last week. The issue continues to be part of the on-going negotiations between the House, Senate, and Administration.