You can't blame most business owners for missing the nasty surprise when it arrived later, in May, on page six of IRS Notice 2020-32. It states that if PPP loan forgiveness is not taxable, then the employee pay, rent, etc., that small businesses paid so the loans would be forgiven--expenses that would be significant tax deductions in a normal year--would not be deductible. The IRS effectively canceled the tax break that made PPP loans so valuable to small businesses.

But wait, it gets worse. What if a business's loan hasn't been forgiven? Then surely those expenses are deductible as usual, right? Well, not necessarily. The IRS ruled in November that if a PPP borrower "reasonably expects to receive forgiveness," then the borrower "may not deduct those expenses" in the year they were paid.

None of this appears to be what Congress intended when it hurriedly passed the CARES Act. But without a fix, "millions of small businesses...will face a surprising, and, in many cases, insurmountable tax bill next year," the trade associations say.

Help may be on the way in the $908 billion bipartisan stimulus proposal gaining traction in Washington, but it's impossible to be sure. The negotiators have released only a vague outline of the proposal, mentioning "deductibility" in connection with PPP. In any case, it's all subject to change in the inevitable horse-trading going on behind the scenes.

Beside the sledgehammer threat of the PPP tax issue, several other emergency programs for small businesses are scheduled to expire at year-end unless Congress extends them. For many small-business owners, it's still uncertain just how bad 2020 will be.

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