Sen. Mitt Romney (R-Utah) speaks as bipartisan members of the Senate and House gather to announce a framework for fresh coronavirus relief legislation at a news conference on Capitol Hill on Dec. 1, 2020.
Kevin Lemarque | Reuters
Lawmakers from both sides of the aisle were able to hash out another rescue bill that includes aid to beleaguered businesses.
How effective that lifeline will be remains to be seen, tax professionals said.
Bipartisan lawmakers introduced a new Covid-19 relief package on Tuesday morning. The $908 billion effort includes additional unemployment insurance payments, but no stimulus checks to households.
The measure also sets aside $288 billion for helping small businesses, including offering firms a second round of loans through the Paycheck Protection Program – a forgivable loan program that was established by the CARES Act earlier this year.
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Recipients of PPP loans are generally eligible for loan forgiveness if they use at least 60% of the proceeds to cover payroll costs. Those that fall short of the threshold may be eligible for partial forgiveness.
The proposal also ensures that recipients of PPP aid won’t be taxed on the first round of forgivable loans and offers simplified forgiveness for loans that are less than $150,000, according to Rep. Josh Gottheimer, D-N.J.
He was among the lawmakers speaking about the measure at a press conference on Capitol Hill Tuesday morning.
Senators participating in discussions around the new proposal include Susan Collins, R-Maine, and Mark Warner, D-Va., as well as Lisa Murkowski, R-Alaska and Mitt Romney, R-Utah.
House members involved in the process include Gottheimer and Tom Reed, R-N.Y. Both are leaders of the Problem Solvers Caucus.
“The Problem Solvers Caucus proudly voted to endorse this package, meaning it has the support of 50 members of Congress — 25 Democrats and 25 Republicans — who represent millions of families and businesses who need immediate action,” Gottheimer said on Tuesday morning.
“They want to get help, and they are sick and tired — like we all are — of waiting for Covid relief,” he said.
Whether those relief measures will be enough for cash-strapped small businesses is another story.
“You’re going to have a group of people who will be worried about taking more PPP funding,” said Megan Gorman, founding partner of Chequers Financial Management in San Francisco.
“They haven’t gotten the guidance they need for the first round, and they’re figuring out whether they’ll be able to make it through,” she said.
Constantly changing guidance
Sen. Angus King (I-Maine) holds a chart as bipartisan members of the Senate and House gather to announce a framework for fresh coronavirus relief legislation at a news conference on Capitol Hill on Dec. 1, 2020.
Kevin Lemarque | Reuters
More than 5 million PPP loans — $525 billion in funding — were approved earlier this year.
The program has run into its share of difficulties over the course of the year, including the steady rollout of guidance from Treasury and the Small Business Administration in the form of “frequently asked questions.”
Another bone of contention has been whether small businesses can deduct expenses that are covered by the loan.
The position at the Treasury and IRS has been that since forgiveness of the loan is tax-free, borrowers can’t deduct expenses. On the other hand, lawmakers have proposed legislation that will permit the write-offs.
Treasury and the IRS said last month that business owners who “reasonably believe” their PPP loans will be forgiven can’t deduct the costs.
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, tax professionals said.
The new framework lawmakers released on Tuesday mentions “deductibility,” but there are no details on how this would unfold for small businesses.
Cold feet from prospective borrowers
Even though small businesses could use the funding, they’re skittish about taking aid that will result in more complexity and uncertainty.
“They’re going to have post-traumatic stress disorder from that first round,” said Tony Nitti, CPA, a partner in RubinBrown’s tax services group in Denver.
“If they clean up the problems from the first round, there will be more interest from borrowers,” he said. “If people go into it knowing there’s blanket forgiveness for loans under $150,000, you’re going to see a lot of people sign up for this.
“But nobody wants to go through this process that we went through again,” Nitti said.