NAA Demands Revision of PPP Tax Treatment
On December 3, the National Apartment Association (NAA) joined with several hundred trade associations in calling on Congress to revise and reverse the Internal Revenue Service’s (IRS) decision to consider Paycheck Protection Program (PPP) funds as taxable income for borrowers. In the midst of economic uncertainty and an onslaught of regulation that threatens business continuity, the IRS notice places even greater financial strain on housing providers.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the PPP to help businesses keep their workforce employed during the pandemic. PPP loans were intended to cover payroll expenses, as well as qualifying rent, utility and mortgage payments and forgivable in part, under certain conditions. More than $500 billion in loans were disbursed to over five million businesses before the program closed in August.
As a protection for borrowers, the CARES Act included a provision stating that any proceeds from a PPP loan that qualified for forgiveness would not be considered taxable gross income. Then, in May, the IRS released Notice 2020-32 which states that no tax deduction shall be allowed for qualified expenses forgiven under the PPP. The effect of this ruling is to transform tax-free loan forgiveness into taxable income. It could amount to a surprise tax increase of up to 37 percent on small businesses when they file their taxes for 2020. As we stated in our coalition letter, the IRS notice acts in direct opposition to Congressional intent of the CARES Act, which is to provide direct assistance to struggling businesses.
As we await a decision from the IRS, NAA continues to work with Congress and the Small Business Administration to ensure that the unique needs of the multifamily housing industry are met. The viability of the apartment industry and risk to the nation’s housing stock hang in the balance. While some multifamily firms were granted access to the PPP at the outset, most firms remained ineligible due to the program’s regulations. Building on the momentum of renewed interest in the program, we urge Congress to give housing providers greater access to the PPP in the next phase of COVID-19 relief.