MSCI Joins Hundreds Of Other Groups To Rally Against Surprise PPP Tax Hike
Lawmakers in the U.S. House and Senate are entering the last days of the 116th Congress and before they return to their home states and districts for the holidays they are hoping to pass two major pieces of legislation: a funding bill for fiscal year 2021 and a fourth COVID-19 relief package for struggling Americans and businesses.
Regarding the latter piece of legislation, the Metals Service Center Institute (MSCI) and more than 550 other national and state trade associations last week sent a letter to House and Senate leaders asking lawmakers to avoid a $120 billion tax hike on small businesses by clarifying correct tax treatment for U.S. Small Business Administration Paycheck Protection Program (PPP) loans.
The letter, available here, explains that the bill that created the PPP included provision stating that any portion of a PPP loan that qualified for loan forgiveness “shall be excluded from gross income” for tax purposes. This tax-free treatment for any forgiven loan amount was a key provision in the law and featured prominently in the debate leading up to and following the legislation’s enactment.
Despite Congress’s clear intent, however, the Internal Revenue Service (IRS) issued a notice that specified that “no deduction is allowed under the Internal Revenue Code … if the payment of the expense results in forgiveness of a covered loan.”
The effect of this ruling is to transform tax-free loan forgiveness into taxable income, raising the specter of a surprise tax increase of up to 37 percent on small businesses when they file their taxes for the calendar year 2020. The letter concluded, “Without Congressional action, businesses will face an unexpected tax bill when they file their taxes for 2020, as they continue to struggle with government mandated shutdowns or slowdowns” and warned “many of those businesses will close and never re-open.”
The letter seemed to have an immediate effect: Rep. George Holding (R-N.C.) and Rep. Lizzie Fletcher (D-Texas), the primary sponsors of the House legislation overturning the IRS ruling, began circulating a letter to House leadership that calls for a legislative fix to be included in any end-of-year legislation.
Stay tuned to Connecting the Dots for more information on this issue.
Individuals who are interested in sending a general letter to lawmakers asking that they approve a COVID-19 relief bill for businesses, can use this portal from the U.S. Chamber of Commerce to do so.
Lawmakers are hoping to coalesce around a $908 billion proposal that would include $160 billion in state and local funding along with a short-term suspension of liability lawsuits related to COVID-19 at the state or federal level.
That draft legislation also includes:
- $288 billion for small business relief, including for the Paycheck Protection Program;
- $16 billion for the distribution of a coronavirus vaccine;
- $82 billion for schools;
- $25 billion for rental assistance;
- $17 billion for airlines; and
- $180 billion for additional unemployment insurance, including $300 a week through March.