Will new stimulus package change PPP loan tax deduction guidance?
Capitol Hill nowhere close to closing stimulus deal
Fox News Congressional Correspondent Chad Pergram on the likelihood of the White House closing a coronavirus stimulus deal.
There are no tax breaks for small businesses proposed in Republican-sponsored legislation that would authorize a second round of the Paycheck Protection Program loan.
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Lawmakers are debating the approval of a second round for the program that provided forviceable loans to small businesses under certain conditions including keeping staff employed throughout the coronavirus pandemic.
CORONAVIRUS RELIEF TAX DEDUCTION DENIAL: IS YOUR PPP LOAN WORTH LESS?
The IRS issued guidance earlier this year preventing business owners who have their PPP loans forgiven from claiming tax breaks on otherwise deductible expenses if they were paid for using the government aid.
The loans are tax-exempt, so the guidance was based on existing law, which generally aims to prevent people from receiving a “double tax benefit.”
MNUCHIN BACKS IRS ON CORONAVIRUS PPP LOAN TAX BREAK DENIAL, ‘BASICALLY TAX 101’
Congress has the power to override the IRS’ decision, which received some pushback from lawmakers, who have indicated that it is not what Congress intended when crafting the legislation.
However, the allowance of the deductions was not included in the HEALS Act, detailed by Republicans earlier this week.
But it still has a chance of being included in potential legislation. It was part of the Democratic-sponsored HEROES Act that was approved by the chamber in May.
A number of Republicans have expressed support for changing the policy.
For example, Sen. Chuck Grassley, a Republican from Iowa who is the Senate Finance Committee chairman, disagreed with the IRS’ decision, saying the issue was discussed when PPP was being developed.
However, U.S. Treasury Secretary Steven Mnuchin supported the IRS’ guidance in May, saying it is “basically tax 101.”
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Even if lawmakers don’t change the guidance – business owners may still claim the deductions. And it may be difficult for the IRS to catch these people due to the sheer volume of PPP loans issued.
Howard Dvorkin, CPA and Chairman Debt.com, told FOX Business that it may be hard to separate what was paid for with PPP loan money and what wasn’t for both business owners – and auditors.
“The auditors won’t pick it up because they’re auditing compliance,” Dvorkin said. “Did you spend the money on payroll? That is what they are auditing.”
Ed Slott, founder of IRAhelp.com, told FOX Business that the only thing stopping people from claiming the deductions on the expenses paid for using the loan money is the “honor system.”
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