Stimulus Update & the Fight to get PPP Expenses Written Off!
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Updated 12.22.2020
Here are all the things we know now about the new bill…
$600 Second Stimulus Check
Per the new bill, there is another round of stimulus checks coming. They say these should be hitting bank accounts over the next month and total $600 per taxpayer. Remember, delays are possible no matter what they promise.
Taxpayers with ITINs will be eligible to get these payments this time, however children over 17 will not be eligible for the $600.
My shameless .02 : $600 per person is a joke.
Extension of the PPP loans!
They put $284 billion into the Paycheck Protection Program. If you haven’t applied for the PPP loans before, now is the time to take it. The second round is opening up. Get ready now with prior year payroll and/or past year tax returns.
You can also get ANOTHER PPP loan even if you got the previous one if:
have 300 or less employees
have used or will use the full amount of their first PPP loan
Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
(example if Q1 of 2020 has at least 25% less in sales compared to Q1 2019)
Small grants are coming
The bill includes $20 billion to small grants, but no information yet on terms or qualifications. More to come once we hear more on what opportunities this can hold.
Extension of Pandemic Unemployment Assistance
Benefits have been extended 11 more weeks (instead of expiring on Dec. 26th) and include a boost of $300 per week. This applies for self-employed individuals as well as a small benefit of $100 per week for side hustles (those who are disqualified from PUA but earn at least $5,000 a year in self employed income).
Landlords are unable to evict through January 31st, 2021
They’re applying $25 Billion to rental assistance and disallowing evictions prior 1/31/2021. Before this, evictions were able to happen starting on December 31st, 2020.
The three martini lunch…
People are rolling their eyes at this. What this portion of the bill does is allow 100% write offs for meals rather than the typical 50%. This is good for anyone who has business meal expenses in 2020…but these write offs are likely way down since restaurants were closed and we were quarantined.
My shameless .02 : It’s clear that this benefit written into the bill is not a benefit for most struggling small businesses who were barely able to feed their loved ones let alone go to a business lunch during a pandemic.
But I really want to know: did they fix the PPP loan to be deductible!?
The past bills have included fixes to this but we aren’t yet sure if they’re going to pass it now.
Wait what needs to be fixed?
The IRS doubled down on stating that the expenses incurred by the PPP aren’t deductible…and people are mad (understandably).
Why the controversy?
It was intended by Congress to be nontaxable -The CARES Act purposely excluded the PPP from income to provide tax benefit to small businesses. If they wanted it to be tax neutral then why even address it in the Act?
It’s a MAJOR tax disadvantage that business owners didn’t know this before taking the funds. – They spent 100% of their PPP funds to get forgiveness only to find out that 30%+ must go to taxes out of their own pockets.
It could easily put businesses in a worse position if they kept doors open due to the PPP – perhaps closing doors would have been better for survival then spending all those funds and footing a giant bill.
And besides all that… the IRS’ stances aren’t very good.
Several arguments as to why the IRS has a weak stance:
They are utilizing revenue rulings (2020-27 & 2020-32) that lead back to cases and positions that experts are finding irrelevant. Let’s dive in…
Argument #1
They referenced the flight school guy who received tax-free reimbursements from the VA for flight school then tried to write off the expense (Section 1.265(b)(1)) and the court didn’t allow the write off. However, this is not the same as the PPP in principle so people are saying this argument isn’t applicable. The pilot only received funds to offset an expense that would have not otherwise happened – the PPP loan is not classified this way.
Arguably, these expenses allowed businesses to stay open and therefore create income. The spending of the PPP funds are not directly linked between the use of the funds and tax-exempt income.
The point? This is not traditional tax exempt income.
Argument #2
Reimbursements – the IRS refers to a case implying that the PPP is a “reimbursement”. But is it really? It can only been considered one if the payment and expense are directly linked to each other. We didn’t only get the PPP just to pay off specific expenses, we got it to survive. The PPP didn’t CREATE an expense, the expenses would have existed regardless.
The point? Forgiveness does not equal reimbursement. Period.
Argument #3
This is regarding the timing of the write-offs. The ruling says that the timing of this is in 2020 regardless of whether we’ve applied for forgiveness or not (see my blog on it here). This argument challenges all that. The tax benefit rule should apply in this case and deduction should follow the benefit aka we should be able to write off 2020 expenses until we get forgiven – assuming they still don’t let us write it off.
The point? We should be able to write off 2020 expenses and the tax issue should be pushed to the 2021 tax year once we actually receive forgiveness.
So what do we do now?
We wait. Many taxpayers will be waiting to file their 2020 return until we hear back. At this point its still slightly too early to tell. There will be an urge to clarify this piece as several senators, the AICPA and basically every business wants the PPP to allow deductions on money spent. I’ll be updating as much as possible.
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