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Federal Legislation Would Allow Businesses to Deduct Expenses

Last week, the Internal Revenue Service (IRS) issued a regulation stating that businesses who received a loan through the federal Paycheck Protection Program (PPP) cannot deduct operational expenses needed to maintain their operations during the pandemic. Colorado businesses and small businesses nationwide have raised concerns about the IRS regulation as they understood the loan to be a forgiven loan and allow for deductions for business expenses.

In an effort to fix this unintended consequence of the CARES Act legislation, a bi-partisan federal bill known as the “Small Business Expense Protection Act” has been introduced in the US Senate by Senators Cornyn (R-TX), Grassley (R-IA), Wyden (D-OR), Rubio (R-FL) and Carper (D-DE). According to the sponsors, “the intent of the Paycheck Protection Program, which was created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was to maximize small businesses’ ability to maintain liquidity, retain their employees, and recover from the pandemic as soon as possible. Last Thursday, the IRS issued a notice that said small businesses cannot deduct these business expenses. This notice is contrary to congressional intent.”

The legislation if passed would amend the PPP program so small businesses can deduct their expenses that were paid through a forgiven PPP loan they received.