The Internal Revenue Service released guidance this month to clarify the accounting treatment of payments under the Paycheck Protection Program and caused some consternation among some small businesses and tax experts. Many business owners who applied for loans under the PPP had the expectation the loans would be forgiven as long as their employees were paid for eight weeks, and the businesses would be able to write off their expenses as they traditionally have been able to do. The guidance puts this in doubt.
Notice 2020-32 clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan under the CARES Act. The income associated with the forgiveness is excluded from gross income.
Allyson is the founder of Women Who Tech, which brings together 10,000+ diverse engineers, entrepreneurs, startup founders, investors, and industry leaders who are transforming the world and inspiring change through technology. As founder, she has produced several Women Who Tech TeleSummits packed with the most inspiring tech changemakers, disruptors, and startup entrepreneurs, ranging from Arianna Huffington, founder of Huffington Post, to Rashmi Sinha, co-founder of SlideShare, acquired by LinkedIn.
In 2015, Allyson launched the Women Startup Challenge in partnership with Craig Newmark, founder of craigslist, the Craig Newmark Philanthropic Fund, and Craig Newmark Foundation, to help fund and showcase women-led startups focused on solving problems for people, businesses, and the planet. Since its inception, the Women Startup Challenge has launched four pitch competitions across the U.S. and one in Europe, with 1700+ applications and over $1 million raised in cash and prizes for women-led ventures.
Allyson is also the cofounder of Rad Campaign, one of the top web agencies that has helped hundreds of organizations, advocacy campaigns, and philanthropists build hard-hitting campaigns, compelling websites, and data visualizations focused on increasing advocacy, donations, and community engagement. Her campaigns have been recognized with several prestigious web awards and featured on several top media networks ranging from CNN to NPR to BuzzFeed, and the Daily Show with Jon Stewart.
Allyson has been named one of the “Most Influential Women in Tech” by Fast Company, a “Tech Titan” by the Washingtonian, and “one of the top 30 women entrepreneurs to follow on Twitter” by Forbes for her leadership roles in technology.
Craig Newmark is Web pioneer, philanthropist, and leading advocate on behalf of trustworthy journalism, voting rights, veterans and military families, and other civic causes. In 2017, he became a founding funder and executive committee member of the News Integrity Initiative, administered by the CUNY Graduate School of Journalism, which seeks to advance news literacy and increase trust in journalism.
In 2016, he created the Craig Newmark Foundation to promote investment in organizations that effectively serve their communities and drive broad civic engagement at the grassroots level. Amid growing concerns about the proliferation of “fake news” in the course of the presidential campaign, one of the foundation’s first donations went to the Poynter Institute to create the Craig Newmark Chair in Journalism Ethics. Newmark is widely credited for his leadership in promoting “news we can trust.”
After working at IBM as an engineer for nearly twenty years, Craig became a consultant to major firms like Charles Schwab, and in 1995 as the Internet was starting to take-off, he began curating a list of San Francisco arts and technology events he personally emailed to friends and colleagues. People were soon calling it "Craig's List,” and when Craig turned it into a company, he monetized it only minimally, opting for a business model that prioritized "doing well by doing good." Today more than 5 billion ads have been posted on the site, the vast majority for free. While Craig remains chairman of craigslist, he has not been involved in management since 2000. He continues to serve as a customer service rep so that he can stay connected to the community of craigslist users.
In 2012, Craig was inducted into the Internet Hall of Fame. He was named “Nerd-in-Residence” by the Department of Veterans Affairs Center for Innovation in 2013. In 2015, craigslist received an award from the FBI in recognition of its undisclosed cooperation with the Bureau in combatting human trafficking.
Craig serves on the board of directors of a range of nonprofits including: journalism organizations (Center for Public Integrity, Columbia Journalism Review, Poynter Foundation, Sunlight Foundation); veterans organizations (Blue Star Families, Iraq and Afghanistan Veterans of America, Vets In Tech); women’s groups (Girls Who Code, Women in Public Service Project) and consumer organizations (Consumers Union/Consumer Reports). In addition, he serves on the advisory boards of nearly twenty other nonprofit organizations including, DonorsChoose, EFF, New America Foundation, Voto Latino, Wikimedia Foundation, Women Who Tech, and many others.
Born in Morristown, New Jersey in 1952, Craig earned degrees in computer science from Case Western Reserve University. He lives in San Francisco and enjoys bird- and squirrel-watching, science fiction, TV, and Dad jokes.
Craig communicates regularly through his own blog at craigconnects.org and through Facebook, Twitter, LinkedIn, Medium, and HuffPost. He also travels the country speaking about issues and appearing on behalf of organizations he supports.
Under section 1106(b) of the CARES Act, a recipient of a covered loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses — payroll costs, any payment of interest on any covered mortgage obligation, any payment on any covered rent obligation and any covered utility payment — during the eight-week “covered period” beginning on the covered loan’s origination date.
The Paycheck Protection Program was designed to provide economic relief for businesses in the wake of COVID-19. If the requirements of section 1106(b) are met, PPP proceeds are excluded from taxable income and the corresponding PPP expenses that are essentially being reimbursed are not tax deductible despite being classified as ordinary expenses under section 162 of the Tax Code. Thus, PPP funding is a tax-exempt “wash” — PPP expenses are not tax deductible to the extent of tax-exempt PPP income. Since “PPP wages” are not currently tax deductible under the program, it will be interesting to see how businesses will be directed to prepare W-2s for 2020.
The CARES Act provides for the payment of fees from PPP funds for the processing of applications on a sliding scale beginning at a rate of 5 percent for loans up to $350,000. These fees have generally become earmarked for banks and other financial institutions despite the hope that many accounting and legal professionals would be eligible for these fees for services rendered in assisting clients to generate the needed paperwork throughout the application process. Banks are receiving tens of millions of dollars in fees from PPP funds to process loans for which they are not at risk. Banks are also collecting transfer fees from PPP funds when these proceeds are wired into business accounts.
The CARES Act legislation stimulus checks were processed based upon Form 1040 filings — essentially bypassing an application process. Similarly, perhaps PPP funding would be more efficiently disbursed if allocations were based upon prior Form 941 filings instead of assessing the same payroll information through a costly application process. Another relief measure would be to allow businesses to take tax deductions for PPP expenses despite the tax-exempt nature of PPP proceeds.
