Legislation Introduced in Congress to Ensure Receipt of Coronavirus Assistance Does Not Affect Ordinary Business Expenses

May 07, 2020

Senators Charles Grassley (R-IA) and Ron Wyden (D-OR), the Chairman and Ranking Member of the Senate Finance Committee have introduced legislation to ensure that taxpayers claiming benefit under the Paycheck Protection Program can still deduct normal business expenses from their taxes. The two page bill – S.3612, “The Small Business Expense Protection Act of 2020” – clarifies that paycheck protection loans in the CARES Act (Public Law 116-136) do not affect a taxpayer’s ordinary business expenses and confirms that ordinary business expenses such as wages, rent and employee health benefits can be deducted on the taxpayer’s income tax return. The legislation was introduced after the IRS issued guidance – IRS Notice 2020-32 – that the Senators said interpreted the statute in a manner contrary to what Congress intended (the Notice states that businesses may not take deductions for ordinary expenses covered by Paycheck Protection Program Loans).

The introduction of this legislation is striking in that this is the exact argument the energy industry has been making for years with respect to the alcohol and biodiesel mixture credits. In fact, in 2013 the IRS agreed that the credits were not to be included in income only to backtrack on its own guidance a few months later once the refund requests started rolling in. This change of position appeared to go against Congressional intent which was to confer the full benefit of the mixture credit, not reduce it by the excise tax. However, to date, Congress has not made any attempt to clarify the statute relating to the mixture credits. Here, the IRS appeared to do the exact same thing, by reducing the benefit of the payment protection loan through not allowing ordinary business expenses to be deducted. Congress has stepped in, saying that it intended to for the taxpayer to have the full benefit and if the IRS is not going to interpret it that way, Congress will need to clarify the language in the statute to ensure that the benefit is not reduced by the taxes.