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Bipartisan Relief Bill Seeks to Allow Tax Deduction for PPP Loan Expenditures

On Monday, December 14, Senator Joe Manchin (D-WV) and Senator Susan Collins (R-Maine) introduced the “Emergency Coronavirus Relief Act of 2020,” which would provide another round of relief to combat the economic fallout resulting from COVID-19.

Among other relief measures, the bill would override the position of the Treasury Department and the Internal Revenue Service (IRS) with respect to the deductibility of business expenses paid for with loan proceeds from the Paycheck Protection Program (PPP). As discussed most recently in our November 23 client alert, the IRS has taken the position that expenses paid with PPP loan funds are not deductible for U.S. federal income tax purposes. As we have noted in prior client alerts, it is not clear that this approach is consistent with the intent of Congress when it specifically provided that the cancellation of covered loans under the CARES Act would not result in cancellation of indebtedness income to borrowers.

The draft legislation would override the position of the IRS and the Treasury Department, clarifying that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided [under the CARES Act].”

Taxpayers may have paid estimated taxes for 2020 based on the IRS position noted above. If the draft legislation is ultimately enacted, taxpayers should take into account the new law in determining the amount of their next quarterly estimated tax payments (which, in the case of an individual taxpayer, will be due January 15).

If your business was the recipient of a covered loan under the PPP, contact the attorneys and tax professionals of Arent Fox LLP to see how this bill may impact your business.

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