In April, Mnuchin and the Internal Revenue Service denied the deductions and refused to budge as lawmakers argued that denying the PPP loan deductions undermined the purpose of the loans in the first place.
A number of business and legal groups have argued that without congressional action, some business owners would likely attempt to challenge the IRS.
Businesses and trade associations have also mounted a lobbying campaign to get Congress to overturn Mnuchin’s decision. Late last week they urged lawmakers to resist a version of PPP loan tax relief that would allow deductions but cap them. But businesses and trade organizations argued they had to incur these deductible expenses in order to get the loan forgiveness.
All of this has resulted in more confusion for businesses: Being unable to deduct the expenses could inflate their income on paper and boost their tax bill, according to Edward Karl, vice president of taxation at the American Institute of Certified Public Accountants.
AICPA and its state societies have heard from tax professionals and their clients “that the PPP loan allowed them to pivot their business, stay open and keep employees hired during the pandemic,” Karl said.
According to Karl, the PPP loans have helped businesses manage a rash of challenges since the pandemic began in February, including cash flow, staffing, supply chain disruptions and constantly changing regulatory mandates. “To burden businesses with additional, potentially significant taxes at this time does not reflect Congressional intent,” he said.