The American Institute of CPAs has joined over 560 business and trade organizations in urging Congress to pass legislation to allow companies that have received forgiveness on their Paycheck Protection Program loans to be able to deduct expenses from their taxes.
The AICPA is objecting to recent guidance from the Internal Revenue Service and the Treasury Department that it argues goes against the intent of the CARES Act, the bill passed by Congress in March in response to the COVID-19 pandemic that established the Small Business Administration’s PPP loans.
Deb Smallwood, Senior Partner at Strategy Meets Action, a ReSource Pro Company, is widely recognized as an industry thought leader who is known for her “big strategic thinking with pragmatic approaches to transformation.” Deb challenges the status quo of insurance and influences the industry to reimage the business of insurance for the digital connected world.
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Edward Webb currently serves as BPM’s advisory partner, offering over 35 years of experience in consulting and financial management, including specific experience in transaction advisory services for both healthy and stressed companies. A published author and speaker, he currently leads the Corporate Finance Consulting Group at BPM and sits on the firm's Management Committee. He holds a doctorate in business administration with an emphasis in ownership transition from Temple University, as well as an MBA with a focus on finance from Indiana University. He was born and raised in suburban Philadelphia before moving his family to California. He may be reached at ewebb@bpmcpa.com.
John Beal is Senior Vice President, Analytics, Insurance, for LexisNexis Risk Solutions. He is responsible for leading the company’s insurance analytics and modeling products and services. With more than 20 years of experience in data and analytics across the insurance and financial services industries and market-leading innovations, Beal and his team develop incremental predictive uses of existing data and processes with a strong focus on developing personal and commercial lines credit-based loss models as well as new non-credit industry solutions. Prior to LexisNexis, Beal held key leadership roles at First Union National Bank in Charlotte, where he was Vice President, Credit and Market Analytics within the Quantitative Analysis Group, and at Citicorp Bankcard, where he served as Assistant Vice President, Credit Policy Department.
The AICPA sent a letter Thursday to congressional leaders asking them to include PPP expense protection, warning of “the specter or a surprise tax increase of up to 37 percent on small businesses when they file their taxes for 2020.”
“At the onset of the COVID-19 pandemic, Congress responded with speed, cooperation and an eye to preventing the worst potential economic outcomes. We ask that you bring that same spirit of urgency and cooperation during this ‘lame duck’ session to prevent an avoidable catastrophe for millions of small businesses that, without Congressional action, will face a surprising and, in many cases, insurmountable tax bill next year,” the letter read.
The letter is only the latest step in the effort by the AICPA to push for the changes. Last month, the AICPA asked CPAs to contact their members in Congress and urge them to back the legislation, known as the Small Business Expense Protection Act (see story). Earlier that month, the IRS and the Treasury issued both a revenue ruling Rev. Rul. 2020-27, and a revenue procedure, Rev. Proc. 2020-51, essentially saying that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible (see story). Earlier this year, the IRS had indicated its position in Notice 2020-32 about deducting expenses for PPP loans. The notice clarifies that no deduction is allowed under the Tax Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of the loan under the CARES Act, and the income associated with the forgiveness is excluded from gross income. In August, the AICPA joined with more than 170 organizations in sending a letter to House Speaker Nancy Pelosi, D-California, and Senate Majority Leader Mitch McConnell, R-Kentucky, encouraging a technical correction to address the tax treatment of loan forgiveness PPP.
The AICPA argues that the IRS guidance contradicts the intent of Congress, transforming tax-free loan forgiveness into taxable income.
“Notice 2020-32 clearly circumvents the original intent of Congress with regard to the PPP program,” said AICPA vice president of taxation Edward Karl in a statement. “The COVID-19 pandemic has had a severe economic impact on our country and now, more than ever, thousands of businesses need a little extra relief to help them survive. It’s critical that Congress acts on this issue immediately and we strongly encourage them to do so.”
A letter cosigned by state CPA societies from all 50 states and four territories, including the New York State Society of CPAs, along with the AICPA has also been sent to congressional leadership urging action on this issue.
“We continue to hear from state CPA societies, our members and CPAs’ clients that the PPP loan allowed them to pivot their business, stay open and keep employees hired during the pandemic,” Karl said in a statement. “PPP loans have helped organizations manage issues such as supply chain interruptions, sick employees and customers’ changing buying habits. To burden businesses with additional, potentially significant taxes at this time does not reflect Congressional intent.”
The AICPA has also been calling for the SBA to simplify its questionnaire for forgiveness of PPP loans of $2 million or more (see story). It joined with more than 80 other trade and business groups in a letter last month expressing concern about the loan necessity questionnaires being sent by the SBA to PPP borrowers who received loans of $2 million or more. The AICPA complained that the questionnaires are long and burdensome and require extensive documentation.
Accounting firms have been hearing complaints about the questionnaires from some of their clients. “For many of our clients, the questionnaires have caused concern pertaining to their ‘need’ for the PPP loan,” said Justin Elanjian, an assurance partner at Aprio. “The questionnaires request information that borrowers were not privy to when certifying their need. We at Aprio, along with borrowers, lenders and other interested parties as evidenced in the AICPA's letter, were hopeful that the comment period would provide the SBA with sufficient cause for revising the questionnaires, but it appears we've come up short.”
Lenders have also been voicing their complaints. “The first business day after the comment period ended, we began hearing from multiple lenders that numerous requests for the originally proposed questionnaire were submitted by the SBA via their portal,” added Elanjian. “This is disappointing to us, our clients and business who made their certification in good faith based on the relevant information at the time of application. When considering eligibility, it’s important to keep in mind that the questionnaires, as overreaching as they may seem, may not only serve as a potential disqualifier, but also as a qualifier of need for the PPP loan.”
