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Letter From Fran Colantonio to US Congressman Jim McGovern

I am writing you today to strongly encourage you to include in any year-end, must-pass legislation language that will allow millions of small business owners a tax deduction for expenses paid with Paycheck Protection Program (PPP) forgiven loans.

Bills have been introduced in the Senate (S.3612 sponsored by Senator Cornyn (R-TX)) and in the House (H.R. 6821 sponsored by Representative Holding (R-NC) or H.R. 6754 sponsored by Representative Fletcher (D-TX)) that would ensure that PPP loan recipients are provided the full benefits intended in the CARES Act. 

All Americans have been impacted by the COVID-19 pandemic, and your actions in Congress have provided much-needed assistance to millions of struggling businesses.

It is important that you ensure that these same businesses are not also subject to additional and unexpected taxes as they continue to struggle to survive.

My CPA offered me a real-life story of why this legislation is so vital. They have a client that as a result of the PPP program retained their entire workforce throughout the shutdown and incurred a $1.5 million loss as a result (the same amount as their PPP loan). They were under the impression as originally stated that the loan was a nontaxable subsidy, so they felt it was the intent they keep people employed even if the business conditions did not support that decision. As a result of Treasury/ and or the IRS ruling that the related expenses to the loan forgiveness are nondeductible in the year incurred, they will incur a 40% tax liability (combined federal and state ) and create a need for additional capital to fund the tax liability ( i.e. $600,000). This will put them in default of their loan covenants and have an adverse impact on their ability to continue as a going concern. If they had not complied with what the thought the intent of the PPP was they would have laid off the workforce in amount allowing them to break even and thus not incur the 600,000 shortfall. How can the law be written in a manner to promote employment at not cost and be changed after business decisions are made and the money is spend causing a different result.

Borrowers who are eligible for forgiveness of their PPP loans have spent the funds as the program directed. Unless they are allowed to deduct these expenses, they may be forced to spend additional funds to pay taxes on the loan proceeds – funds they may not have (See real life example above). Passing this legislation as quickly as possible will provide small business owners more certainty as they focus on year-end business planning that is especially important in these challenging economic times.

I ask that you contact your Senate and House leaders to ensure that PPP loan forgiveness deductibility language is passed by Congress before the end of the year.”

Please be safe,
Francis Colantonio
Chairman & CEO
Colantonio Inc.
16 Everett Street
Holliston, MA 01746
t: 508.429.8666 x224
c: 508.726.9840