You Are Intelligent
Updated: Apr 7
The Internal Revenue Code, is a terribly dull and frustrating read. Any studious reader who seeks to understand the common question “are forgiven business expenses in a PPP loan, deductible,” should stock up on coffee for the caffeine; and yoga for frustration. To wit, a determined reader would have to wade through the jungle of text in the Consolidated Appropriations Act of 2021 to find the answer – provided one does not miss it altogether:
‘‘no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness described in subsection (b),
‘‘no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1), and
‘‘in the case of an eligible recipient that is a partnership or S corporation- (A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 of the Internal Revenue Code of 1986, and ‘‘(B) except as provided by the Secretary of the Treasury (or the Secretary’s delegate), any increase in the adjusted basis of a partner’s interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph (A) shall equal the partner’s distributive share of deductions resulting from costs giving rise to forgiveness described in subsection (b).’’
There is no GPS in the tax code. There is no legend that explains “subsection (b),” or why would there be a delegate for the Secretary of Treasury! You cannot just type “forgiveness of PPP loan” and hope that directions would show up on your laptop. Turning right in half-a-mile will not find you a tax credit. This is what many of PMG’s clients find so frustrating about the tax code – why does the answer “forgiven business expenses in a PPP loan may still be deductible for tax purposes” have to be strung out into a literary thicket of 157 words!
Dear Reader, if you download the Internal Revenue Code, known as Title 26 from the United States, the file will be 6,550 pages long. If you want to add all the regulations and relevant case-law, add another 71,000 pages! According to the National Taxpayers Union Foundation, the opportunity cost of the billions of hours spent in preparation fees and deciphering the tax code is equivalent to $367.3 billion.
PMG Intrinsic strongly encourages Congress to pass a simplified and streamlined tax code. An important answer of 14 words should not be strung out to a leviathan of 157 words. The treatment of each deduction, credit, and entity structure is the same. The genesis of our code is not corporate greed, or tax loopholes. Its conception is birthed by the lack of an editor. Former Treasury Secretary Paul O’ Neill remarked that “Our tax code proves we are not an intelligent people because no intelligent people would have invented this thing.” Congress needs to serve its intelligent constituents.