Bill Text: NJ AR241 | 2020-2021 | Regular Session | Introduced


Bill Title: Opposes IRS guidance on deductibility of business expenses paid with loans forgiven under Paycheck Protection Program; petitions federal government for enactment of remedial legislation.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2021-05-05 - Introduced, Referred to Assembly Appropriations Committee [AR241 Detail]

Download: New_Jersey-2020-AR241-Introduced.html

ASSEMBLY RESOLUTION No. 241

STATE OF NEW JERSEY

219th LEGISLATURE

 

INTRODUCED MAY 5, 2021

 


 

Sponsored by:

Assemblyman  DANIEL R. BENSON

District 14 (Mercer and Middlesex)

 

 

 

 

SYNOPSIS

     Opposes IRS guidance on deductibility of business expenses paid with loans forgiven under Paycheck Protection Program; petitions federal government for enactment of remedial legislation.

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Assembly Resolution opposing Internal Revenue Service guidance that prohibits Paycheck Protection Program loan recipients from deducting certain expenses from federal taxable income and petitions federal government for enactment of remedial legislation.

 

Whereas, The ongoing COVID-19 pandemic continues to place an extraordinary number of small businesses at the brink of insolvency; and

Whereas, Following the outbreak of COVID-19, Congress enacted the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act), which established the Paycheck Protection Program (PPP) to provide small businesses with the liquidity needed to survive the pandemic; and

Whereas, Under the program, the United States Small Business Administration approved approximately $525 million in loans for small businesses to support payroll expenses and other specified non-payroll operating costs, such as business mortgage interest payments and business utility costs; and

Whereas, To incentivize loan recipients to maintain existing staff, the program allowed a loan to be forgiven if the borrower met certain payroll and employment retention criteria during a designated period, which criteria required 60 percent of the loan to be dedicated towards payroll costs and prevented the borrower from significantly reducing the salaries of full-time equivalent employees; and

Whereas, In an attempt to protect loan recipients from any adverse tax consequences that may arise from the forgiveness of a loan, the CARES Act explicitly required the amount of any such forgiveness to be excluded from the borrower's federal taxable income; and 

Whereas, Contrary to congressional intent, the Internal Revenue Service (IRS) subsequently issued guidance, IRS Notice 2020-32, that prohibited loan recipients from deducting any business expenses supported by a forgiven loan (e.g., payroll expenses, business mortgage interest payments, utility costs) from the borrower's federal taxable income; and

Whereas, Given that the business expenses supported by these funds were previously deductible for federal tax purposes, the IRS's denial of deductibility for such expenses effectively treats loan forgiveness as fully-taxable income, thereby undermining the intent of the CARES Act; and 

Whereas, Worse yet, IRS guidance exacerbates the financial hardships borne from the COVID-19 pandemic by increasing the taxable income of small businesses that elected to retain existing employees; and

Whereas, Absent the enactment of federal legislation to reverse this guidance, many responsible small businesses, whose solvency depends on the receipt of forgivable loans, will nevertheless bear the full costs of loan forgiveness through increased taxes; and

Whereas, As a model for such legislation, the "Small Business Expense Protection Act of 2020," pending before Congress as S.3612 and H.R.6821, and the "Protecting the Paycheck Protection Program Act of 2020," pending before Congress as H.R.6754, would each allow PPP loan recipients to deduct otherwise qualified business expenses that were paid with a loan that was forgiven under the program; and

Whereas, Remedial legislation of this nature promises to provide the comprehensive relief for small businesses that was originally intended in the CARES Act; and

Whereas, Accordingly, this House respectfully petitions the federal government to enact such legislation as is necessary to reverse the IRS guidance and support small businesses during this time of need; now, therefore,

 

     Be It Resolved by the General Assembly of the State of New Jersey:

 

     1.    This House opposes recent guidance from the Internal Revenue Service that prohibits small business loan recipients under the Paycheck Protection Program from deducting otherwise qualified business expenses from federal taxable income when the expenses were supported by a loan that was forgiven under the program. 

 

     2.    This House also respectfully petitions the federal government to enact legislation, such as the "Small Business Expense Protection Act of 2020" or the "Protecting the Paycheck Protection Program Act of 2020," to allow loan recipients under the Paycheck Protection Program to deduct otherwise qualified business expenses from federal taxable income when the expenses were supported by a loan that was forgiven under the program. 

 

     3.    Copies of this resolution, as filed with the Secretary of State, shall be transmitted by the Clerk of the General Assembly to the President and Vice-President of the United States, the Majority and Minority Leaders of the United States Senate, the Speaker and Minority Leader of the United States House of Representatives, and each member of the United States Congress elected from the State of New Jersey.

 

 

STATEMENT

 

     This House opposes guidance from the Internal Revenue Service (IRS) that prohibits Paycheck Protection Program (PPP) loan recipients from deducting certain expenses and petitions the federal government for the enactment remedial legislation.

     Following the outbreak of COVID-19, Congress enacted the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act), which established the PPP to provide small businesses with the liquidity needed to survive the pandemic.  Under the program, the United States Small Business Administration approved approximately $525 million in loans for small businesses to support payroll expenses and other specified non-payroll operating costs, such as business mortgage interest payments and business utility costs.  To incentivize loan recipients to maintain existing staff, the program allowed a loan to be forgiven if the borrower met certain payroll and employment retention criteria during a designated period.

     However, contrary to congressional intent, the IRS subsequently issued guidance, IRS Notice 2020-32, that prohibited loan recipients from deducting any business expenses supported by a forgiven loan (e.g., payroll expenses, business mortgage interest payments, utility costs) from the borrower's federal taxable income.  Given that the business expenses supported by these funds were previously deductible for federal tax purposes, the IRS's denial of deductibility for such expenses effectively treats loan forgiveness as fully-taxable income, thereby undermining the intent of the CARES Act; and 

     Absent the enactment of federal legislation to reverse this guidance, many responsible small businesses, whose solvency depends on the receipt of forgivable loans, will nevertheless bear the full costs of loan forgiveness through increased taxes.  As a model for such legislation, the "Small Business Expense Protection Act of 2020," pending before Congress as S.3612 and H.R.6821, and the "Protecting the Paycheck Protection Program Act of 2020," pending before Congress as H.R.6754, would each allow PPP loan recipients to deduct otherwise qualified business expenses that were paid with a loan that was forgiven under the program.

     Remedial legislation of this nature promises to provide the comprehensive relief for small businesses that was originally intended in the CARES Act.  Accordingly, this House respectfully petitions the federal government to enact such legislation as is necessary to reverse the IRS guidance and support small businesses during this time of need.

feedback