NADA has received several inquiries from dealers and ATAEs about an economy-wide regulatory interpretation that jeopardizes the deductibility of expenses related to all Paycheck Protection Program loans. As this issue is critical to every recipient of a PPP loan, NADA supports clarifying legislation that would provide full deductibility of PPP loan expenses.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the amount of a forgiven PPP loan will not be included as income under the Tax Code. However, the Treasury Department issued a regulatory interpretation of the CARES Act providing that PPP loan expenses that are forgiven may not be deducted from federal income taxes. Under this interpretation, PPP forgiveness grants would no longer be tax-free as Congress intended under the CARES Act.
NADA has been working this issue for several weeks, along with the broader business community. The attached letter signed by NADA includes approximately 180 other signatories.
Fortunately, there is strong bipartisan support in Congress to reverse Treasury’s interpretation. House Ways and Means Chairman Richard Neal (D-Mass.) and Ranking Member Kevin Brady (R-Texas), as well as Senate Finance Committee Chairman Charles Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.), support legislation to clarify that the CARES Act provides for full deductibility of PPP loan expenses. The Joint Committee on Taxation has stated that a legislative fix would have no revenue impact because Congress intended to provide for full deductibility in the CARES Act. The House has passed a large COVID relief bill that included a provision for full deductibility, and in the Senate, both Republican and Democratic leaders are expected to be supportive.
The next major COVID relief package provides the best legislative vehicle to enact this narrow fix, but those negotiations are currently stalled. Therefore, we will be working this issue during the Virtual Washington Conference in September, and if necessary, during the lame duck session of Congress. We understand the urgent need to resolve this issue favorably for the 2020 tax year.
Chairman, Legislative Affairs Committee