For many PPP borrowers, other than blanket loan forgiveness, the best holiday present that Congress could offer would be correcting PPP tax deductibility that was omitted from the original CARES Act. As the holiday recess gets closer, leaders of the House, the Senate and U.S. Treasury continued to work late in the evening of Tuesday, December 15th toward a stimulus compromise that, for now, includes express tax deductibility of expenses paid with PPP forgiven funds.
While not yet set for a vote, the recently released legislative text of the Emergency Coronavirus Relief Act of 2020 provides that “no [tax] deduction is to 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…” If enacted, this fix would alleviate many of the unfavorable tax consequences of disallowing expenses; chief among them, the additional tax due because of disallowance.
Ultimately, it is still too early to guarantee passage of this proposal, but the willingness to pass another major round of stimulus in Congress has reached a point not yet seen since the CARES Act. PPP borrowers should consult with their tax advisors on the best approach to take with respect to items like estimated tax payments or extending tax returns until legislation passes or does not pass.