Help overturn an IRS ruling on PPP deductions that could hurt veterinarians
That’s how many veterinary practices took out loans through the Paycheck Protection Program (PPP) during the COVID-19 pandemic.
That number accounts for about 56% of veterinary practices in the US, so the odds are better than even that your practice was one of them. Now the IRS wants to limit how you can use those loans. Specifically, they want to prohibit you from claiming certain federal tax deductions for forgivable expenses if you paid for them with PPP funds—expenses that are normally fully tax deductible.
If the IRS isn’t overruled, you could be facing a tax burden you weren’t expecting under the original terms of the PPP loan.
The American Veterinary Medical Association (AVMA) has been at the forefront of lobbying to shape the PPP program to best help veterinary small business owners stay open during the pandemic. Thanks in part to those efforts, and according to recent data from the US Small Business Association:
- PPP loans have helped keep more than 200,000 veterinary team members working and caring for patients.
- Those funds have been distributed among veterinary practices in all 50 states, plus the District of Columbia, Guam, Puerto Rico, and the Virgin Islands.
- Loans to veterinary practices total an estimated $2.1 billion to date.
- More than 80% of loans taken by the veterinary profession were under $150,000.
NEWStat reached out to Kent McClure, DVM, JD, the AVMA’s chief government relations officer, to find out what it means for practice owners who took out PPP loans if the IRS gets its way.
“When the PPP was enacted by Congress, they intended for there to be no tax consequence to taking the loans, and they wanted to provide as much funding as they could to support payroll and the specified business expenses,” McClure told NEWStat. “The loans are not considered taxable income.”
That changed on June 30 when the IRS issued Notice (2020-32), which prohibits PPP loan recipients from deducting any ordinary business expenses that were paid with funds obtained through the loan.
“Businesses are usually able to deduct their payroll expenses, mortgage interest, utilities, etc., as ordinary business expenses,” McClure said. “[But] if they can’t deduct these expenses when paid by PPP loan proceeds, it can reduce the effectiveness of the PPP funds by up to 40%, depending [on where they live].”
“This is not what Congress intended,” he added.
McClure noted that there’s support in both the House and Senate to reverse this IRS policy. That would allow more working capital to stay within small businesses during the pandemic to help them keep employees and keep operating, which was intent of the PPP program. The AVMA is working to leverage that support through their Congressional Advocacy Network Action Alert. It seeks to ensure favorable tax treatment of PPP loan proceeds and for a streamlined forgiveness process for loans below $150,000, which would include the vast majority of veterinary PPP loans.
The AVMA is urging you to help by contacting your congressional representatives and urge them to pass legislation that would overturn Notice (2020-32). The AVMA made it easy with a form letter you can personalize and send from their website. Just enter your ZIP code and you’ll be taken to a form already filled out with the names of your representatives.
Do it before time runs out. Congress is working on the legislation now, and it’s expected to pass before they leave for their August recess.
Photo credit: © iStock/Yaraslau Saulevich