A bipartisan bill pending in the U.S. Senate would end “confusion” about tax liabilities related to Paycheck Protection Program loans, Home Furnishings Association members were told Wednesday.

HFA’s Government Relations Action Team held a conference call with Andrew Siracuse, tax counsel for Sen. John Cornyn (R-Texas). Cornyn introduced the Small Business Expense Protection Act of 2020 last month. It has 23 co-sponsors from both parties.

Cornyn’s bill responded to a ruling by the Internal Revenue Service that tax deductions can’t be claimed for ordinary business expenses if those expenses were paid with forgiven portions of PPP loans. That might include, for example, some payroll costs or mortgage interest.

The IRS interpretation was wrong

The HFA opposes that interpretation – and so do Sen. Cornyn and his co-sponsors.

“My boss, Sen. Cornyn, thinks the IRS got the issue incorrect,” Siracuse said. “It was intended by Congress to allow folks to continue to deduct these expenses that were used with forgiven PPP loans.”

Siracuse didn’t dispute the idea that, under normal circumstances, the deduction might not be granted. The IRS may regard it as “double-dipping” if businesses claimed expenses that were not incurred.

But, said Siracuse, “Sen. Cornyn disagrees entirely with that characterization. These are unusual times, to say the least, and the last thing we should do is hit folks with a hidden tax.“

The tax was hidden in that it wasn’t spelled out in the CARES Act, which created the PPP. Congress didn’t provide loan forgiveness only to let the IRS claw back some of the money.

‘A gut punch for businesses’

“Treasury’s guidance barring deductions for expenses paid by PPP loans is a gut punch for businesses struggling to stay afloat,” Sen. Ron Wyden (D-Ore.) said in a statement. “It defies common sense for Treasury to provide help on the front end, but then take it away on the back end.” Wyden is the ranking Democrat on the Senate Finance Committee. Finance Chairman Chuck Grassley (R-Iowa) also supports Cornyn’s bill.

“From my boss’ perspective, his bill clarifies it so there’s no confusion at all,” Siracuse said. “The tax writing committees understood it, the Joint Committee on Taxation that does all the scoring of any tax legislation, they had the same understanding. So, it seems that Treasury is sort of the odd man out.”

Cornyn hopes the bill can pass on its own through unanimous consent. If not, it could be attached to the next coronavirus recovery legislative package in late July or early August – in plenty of time in either case to fully deduct 2020 business expenses.

Many businesses think they’ll need more help

Siracuse addressed other measures that might also be included, such as an expansion of the Employee Retention Tax Credit or the RESTART Act, which would create a new lending program. HFA’s Government Relations Action Team met via Zoom last month with U.S. Sen. Todd Young (R-Ind.), the primary co-sponsor of the bipartisan RESTART Act, and fully supports the bill.

A survey of its members by the National Federation of Independent Business found that 47 percent of more than 600 respondents said they anticipate they will need additional government assistance over the next 12 months. The HFA aims to make sure that Congress listens to business concerns, especially as Covid-19 continues to spread rapidly in many states.

The HFA urges furniture retailers to ask their senators to support S. 3612, the Small Business Expense Protection Act of 2020, and the RESTART Act. Contact information can be found here.