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.
Mona Malone is chief human resources officer and head of people and culture for BMO Financial Group. She is accountable for the people and culture agenda at BMO, which includes human resources, corporate communications, community giving, the office of the Chief Executive Officer, BMO Quebec and the bank’s corporate university, BMO IFL.
Malone has held roles in human resources and in the business for over 20 years at BMO. She was a retail banking sales leader at BMO in the GTA and VP product and marketing officer at ePost (a joint venture between Canada post and BMO). In addition, she has held a range of senior HR roles such as CHRO of Canada’s Personal and Commercial Banking group and chief learning and talent officer.
Malone lives in Toronto with her husband and three children. She is a recipient of the Queen’s Diamond Jubilee Medal in recognition of her community service with youth development organizations.
Malone holds an Honours Business Administration degree from Ivey Business School at University of Western Ontario. She is an advisory council member for the Ian O. Ihnatowycz Institute for Leadership at the Ivey Business School, and a member of the Branksome Hall board of governors and the Long Run Initiative board of governors.
Caroline Seymour is vice president of product marketing at Zerto.
Ernest Anunciacion, director of product marketing at Workiva, has over 15 years of experience in internal audit, risk management and business advisory consulting. He is a Certified Internal Auditor and Six Sigma Black Belt. He holds an undergraduate degree and an executive MBA from the Carlson School of Business at the University of Minnesota.
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.”
