The payroll protection program (PPP) was created by the Congress through the CARES Act.
The Congress approved the CARES Act earlier this year to prop up the economy during the financial downturn caused by the COVID-19 crisis. Contrary to what some so-called journalists in the so-called mainstream media would have us believe, the payroll protection program was not a handout for the business community. Instead, the program — as I have understood it — was initiated to make low-interest loans available to businesses impacted by COVID-19 so businesses could continue to pay their employees instead of laying them off and forcing them to sign up for unemployment benefits. In other words, even the politicians in the Congress recognized it would be more beneficial to the financial wellbeing of the country if businesses were enabled to keep people employed and productive in lieu of forcing any business to slash its workforce to survive in a crippled economic atmosphere thanks to COVID-19.
The payroll protection program required any business that received a PPP loan to spend the money on paying employees, utilities and rent, assuming a business rented office space. The loans could be entirely forgiven if a business spent its PPP loan proceeds exactly how the government wished a business to spend the money.
Here’s a very important point. The CARES ACT did not intend for PPP loan proceeds to be treated as taxable income. That means businesses that secured PPP loans entered into a contract with the federal government, per se.
Like countless other small businesses across the country, we applied for and received PPP loans earlier this year. We pursued the funding out of concern that the closure of the economy would force us to lay off employees in light of the economic downturn possibly crippling our cash flow. We spent the money according to the guidelines established by the government. We have weathered the storm, so to speak, and were looking forward to a better year in 2021. At least that was the prevailing attitude in this corner before COVID-19 supposedly surged again, prompting our elected officials and their lackeys to threaten America with another shutdown of the economy to combat the so-called reemergence of COVID.
As any business owner knows, it’s that time of the year when business owners may wish to converse with their certified public accountants to get an idea on whether they will owe Uncle Sam any money in taxes on their earnings for the current year. Of course, those taxes — if any are owed — won’t be due until the spring, but it certainly helps knowing ahead of time whether you’re facing a tax issue or not. Plus, there’s still some time before the end of the year which would allow a business owner to spend down some profits, assuming 2020 has been a profitable year. That most likely isn’t the case for many — if not most — business owners.
Late last week, yours truly had the pleasure of being informed by our CPA that taxes — considerable to me — would be owed on our corporate earnings for 2020. Needless to say, I was shocked because 2020 has been a terrible year business-wise thanks to our governor overreacting to COVID-19 and shutting down our economy in Louisiana for weeks on end.
How in the hell do we owe taxes, I thought. It’s simple, I was informed. Though the Congress did not intend for PPP loan proceeds to be treated as taxable income, the Internal Revenue Service issued its own guidelines that state a business cannot deduct the expenses that were paid with PPP loans proceeds. That, my friends, results in PPP loan proceeds flowing straight to the bottom line and accordingly, shall be treated as income.
It will take an act of the Congress to correct this mess. At least that’s what Sen. John Kennedy says. The chances of the Congress — in this divided political atmosphere — approving legislation to correct this fiasco are slim to none. Mark my word.
Once again, a bureaucratic interpretation of an act approved by the Congress has resulted in our government putting the screws to the backbone of the U.S. economy. Furthermore, the government has abrogated the sanctity of a contract, the basic instrument of doing business in America.
Sam Hanna Jr. can be reached by phone at 318-805-8158 or e-mail at firstname.lastname@example.org.