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Mnuchin told FOX Business’s Maria Bartiromo this week that he had looked at the issue personally and the advice was correct, saying it was “basically Tax 101”.
“Money entering PPP is not taxable”, Mnuchin mentionned. “So if the money that comes in isn’t taxable, you can’t double the math, you can’t say you’re going to get deductions for workers you haven’t paid. “
If the PPP subsidies were taxable, the deductions would be viable, Mnuchin added.
The loans are tax exempt, so the guidelines were based on existing law, which is generally aimed at preventing people from receiving a “double tax benefit”.
The decision was pushed back somewhat by lawmakers, who said it was not what Congress foreseen during the drafting of the legislation.
Senator Chuck Grassley, an Iowa Republican who is the chairman of the Senate Finance Committee, disagreed with the IRS decision, saying the issue was discussed during the development of the PPP .
“The intention was to maximize the ability of small businesses to maintain liquidity, retain employees and recover from this health crisis as quickly as possible,” Grassley said in a statement. “This advice is contrary to that intention.”
Experts also argue that he makes the loan less valuable to the recipient.
“If the [expenses] are not deductible, so they pay tax on this loan, which makes it less attractive, ”Ed Slott, founder of IRAhelp.com, told FOX Business. “Losing a deduction is like being taxed on something. “
Congress has the power to override IRS guidelines.
However, many experts noted that the frequent changes in program conditions have become confusing and that basing decisions on current directions may not be the best solution if those directions change later.
The program, designed to encourage companies to retain their staff, has been a source of frustration for some. Millions of business owners are still waiting for banks to process their loans after a $ 350 billion first round of financing ran out last month. Lawmakers and financial experts estimate the second $ 310 billion will also be used up before all qualifying businesses receive a loan.