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Letter to Hon. Nancy Pelosi, Speaker of the House; Hon. Kevin McCarthy, House Minority Leader; Hon. Steny Hoyer, House Majority Leader; and Hon. Steve Scalise, House Minority Whip - Congressman Tim Ryan Presses Congressional Leadership to Ensure Small Businesses with PPP Loans Remain Eligible for Tax Deductions

Letter

By: Terri Sewell, Ann Kirkpatrick, Ruben Gallego, Mike Thompson, Jim Costa, Judy Chu, Ken Calvert, Joe Courtney, Eleanor Norton, Mike Waltz, Daniel Webster, Greg Steube, Rick Allen, Mike Simpson, Brad Schneider, Lauren Underwood, Darin LaHood, André Carson, Ron Estes, Andy Barr, Jamie Raskin, John Moolenaar, Elissa Slotkin, Tom Emmer, Vicky Hartzler, Trent Kelly, Greg Murphy, Richard Hudson, Jr., Chris Pappas, Andy Kim, Mikie Sherrill, Lee Zeldin, Grace Meng, John Katko, Chris Jacobs, Joyce Beatty, Bob Gibbs, Steve Stivers, Markwayne Mullin, Peter DeFazio, Chrissy Houlahan, Lloyd Smucker, Guy Reschenthaler, David Cicilline, Dusty Johnson, David Kustoff, Michael McCaul, Jodey Arrington, Michael Burgess, Brian Babin, Tim Ryan, Tom O'Halleran, David Schweikert, Jared Huffman, Josh Harder, Julia Brownley, Mark Takano, John Larson, Jahana Hayes, John Rutherford, Darren Soto, Charlie Crist, Jr., Austin Scott, Russ Fulcher, Sean Casten, Mike Bost, Cheri Bustos, Jim Baird, Sharice Davids, John Yarmuth, David Trone, Jack Bergman, Tim Walberg, Angie Craig, Ann Wagner, Jason Smith, Steven Palazzo, David Rouzer, Jeff Fortenberry, Jeff Van Drew, Tom Malinowski, Mark Amodei, Kathleen Rice, Antonio Delgado, Brian Higgins, Brad Wenstrup, Bill Johnson, Dave Joyce, Rick Crawford, Paul Gosar, Greg Stanton, Ami Bera, Jimmy Panetta, Tony Cárdenas, Jason Crow, Jim Himes, Neal Dunn, Bill Posey, Gus Bilirakis, Buddy Carter, Michael San Nicolas, Mike Quigley, Bill Foster, Adam Kinzinger, Jackie Walorski, Larry Bucshon, James Comer, Jr., Dutch Ruppersberger, Chellie Pingree, Dan Kildee, Haley Stevens, Peter Stauber, Billy Long, Bennie Thompson, David Price, Ted Budd, Annie Kuster, Joshua Gottheimer, Dina Titus, Thomas Suozzi, Jerry Nadler, Joe Morelle, Steve Chabot, Bob Latta, Troy Balderson, Anthony Gonzalez, Tom Cole, Kurt Schrader, Susan Wild, Fred Keller, Mike Kelly, Jr., Jeff Duncan, Tim Burchett, Van Taylor, Vicente Gonzalez, Chip Roy, Colin Allred, Abigail Spanberger, Suzan DelBene, Cathy Rodgers, Glenn Grothman, David McKinley, Kevin Hern, Suzanne Bonamici, Brian Fitzpatrick, Dan Meuser, John Joyce, Conor Lamb, Ralph Norman, Jr., Jim Cooper, Lance Gooden, Sheila Jackson Lee, Roger Williams, Marc Veasey, Stacey Plaskett, Jaime Herrera Beutler, Derek Kilmer, Tom Tiffany, Alex Mooney, Peter Welch, Dan Newhouse, Ron Kind, Mike Gallagher, Carol Miller, Roger Marshall
Date: Dec. 9, 2020
Location: Washington, DC
Issues: Business and Consumers Taxes Government Budget and Spending

Dear Speaker Pelosi, Leader McCarthy, Leader Hoyer, and Whip Scalise,

Thank you for your continued efforts to provide assistance to the American people through these challenging times. As we continue working on additional coronavirus assistance measures, we want to bring your attention to an important issue affecting small businesses across the United States and ask for your help in providing much-needed relief.

Over the past few months, statewide shutdowns in response to the pandemic have had devastating effects on small businesses throughout the country. Thousands of small businesses have permanently closed, while capacity restrictions and reopening costs have drastically cut revenue streams for those that have remained open.

In response to these dire economic conditions, Congress enacted the Paycheck Protection Program (PPP) to provide more than $600 billion for forgivable loans to small businesses to help keep employees on payroll and continue operating. Since its enactment, over 5 million loans have been made to businesses in all fifty states. This program has helped keep our economy from total collapse by providing a lifeline to small businesses with no alternative funding source.

The PPP was intended to provide vital tax-free assistance for certain business costs in unprecedented economic circumstances. Congress specifically included Section 1106(i) in the CARES Act to exclude forgivable loan assistance from taxable income. On April 30, however, the Internal Revenue Service (IRS) released Notice 2020-32 disallowing the deduction of forgiven expenses.

As Chairman Grassley, Chairman Neal, and Ranking Member Wyden wrote in a letter to Secretary Mnuchin on May 5, 20201, this notice is contrary to Congressional intent. Section 1106(i) of the CARES Act was put in place specifically to ensure forgivable loan proceeds would be tax free, stating that "any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income." Notice 2020-32 essentially ignores this section and effectively makes forgivable loans taxable despite Congress's clear intent to allow the deduction of necessary business expenses.

To make matters worse, on November 18, 2020, the IRS released Revenue Ruling 2020-27 stating that PPP recipients who had not even received or applied for forgiveness could not deduct normal business expenses if they reasonably expected their loans to be forgiven.

These notices are not only contrary to Congressional intent, but in fact changed the terms of the loan after a majority of PPP applicants had already applied for and received funds. Over 84% of total PPP applications were submitted prior to April 17, when the program first expired. This unfairly changed the rules of the program after the overwhelming majority of participants had joined.

Without Congressional action, small businesses are estimated to pay over $120 billion in taxes on forgivable PPP loans. At a time when many are struggling to keep their doors open each day, we cannot saddle small businesses with a massive surprise tax bill.

For this reason, we ask that you include a fix to clarify that recipients of forgivable PPP loans can claim normal business expense deductions in any end-of-year legislation. Thank you for your consideration of this request.

Sincerely,


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