In the COVID stimulus bill passed by Congress and signed into law by the president at the end of 2020, Congress reversed a ruling by the IRS that business expenses paid for by a Paycheck Protection Program (PPP) Loan that was forgiven were not tax-deductible. 

PPP loans made possible through the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed last spring, were a lifeline for many small businesses, including funeral homes.

The concept of the PPP loans was simple: if a qualifying small business used a federally-guaranteed loan to pay their employees and cover certain non-payroll expenses, the loan would be forgiven. Congress included a provision in the CARES Act stating that any portion of a PPP loan that was forgiven would be excluded from gross income for tax purposes.

In spite of Congress’ clear intent, the IRS issued a notice and revenue ruling that reversed Congress’ clear intent and turned a tax-free forgivable loan into taxable income! This could have resulted in a “surprise” tax increase of up to 37% on small businesses; this could have been financially devastating for many business that were already struggling because of the pandemic.

With many funeral homes taking advantage of PPP loans, NFDA immediately began advocating so that they wouldn’t be blindsided by this unexpected change. NFDA joined a coalition of other associations and organizations representing businesses in signing a letter urging Congress to take legislative action to correct the tax treatment of PPP loan forgiveness. 

Even more important to this effort was you! Members like you joined in the effort by sending letters to your members of Congress asking them to address this problem. The voices of people who are directly impacted by critical issues like this make a big difference. Thank you for raising your voice in support of small businesses … you made this possible!

This legislative fix, which reverses the IRS’ decision, makes the PPP a true lifeline for small businesses that have been struggling during the pandemic. If you received a PPP loan, when you file your 2020 taxes, your accountant or tax preparer will help ensure any business expenses paid for with forgiven PPP loans are deducted as you would in the normal course of business. 

Learn more from the Small Business Administration: https://advocacy.sba.gov/2020/12/28/yes-small-businesses-expenses-paid-with-forgiven-ppp-loans-are-deductible/.