On May 12, the House Democrats introduced an aspirational tax package within the Health and Economic Recovery Omnibus Emergency Solutions Act (the “HEROES Act”), which lays out their starting point in negotiations with the Senate and provides insight into the top Democratic legislative tax priorities.

Deductibility of PPP Loan Proceeds Expenditures -

In our May 1 client alert, we explained that an IRS notice barred the deductibility for U.S. federal income tax purposes of some expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan through the Paycheck Protection Program (“PPP”) under the CARES Act. In that client alert, we summarized the IRS notice but highlighted that the IRS’s conclusion may contradict Congress’s intent when it contemplated the PPP under the CARES Act. Under the IRS guidance, no deduction is allowed under the Internal Revenue Code (the “Code”) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan under the CARES Act and if the income associated with the forgiveness is excluded from gross income. The HEROES Act overrides the IRS position on this issue. Under the HEROES Act, a taxpayer may deduct expenses paid or incurred in the taxpayer’s trade or business when the taxpayer receives a PPP loan under the CARES Act even if the payment of the expense results in forgiveness of the loan.