The top Republican and Democrat on the Senate Finance Committee said the Treasury Department “missed the mark” in new guidance that limits tax breaks for businesses that get their Paycheck Protection Program loans forgiven.
In a joint statement Thursday, Senate Finance Chairman Chuck Grassley and Democrat Ron Wyden said the Treasury is depriving some small businesses of much-needed economic relief by forcing them to choose between getting their PPP loans forgiven or claiming write-offs on expenses they covered with the loan money. The IRS published guidance on the issue Wednesday.
“Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close,” Grassley and Wyden said.
The congressional reaction to the guidance puts additional pressure on the Treasury and Internal Revenue Service to allow taxpayers to claim the expense deductions. Grassley and Wyden encouraged the IRS to reverse its position.
The lawmakers said they are working to include language in year-end legislation clarifying that taxpayers qualify for expense deductions even if their loans are forgiven. That could be included in government spending legislation that Congress must pass by Dec. 11 before federal funding runs out.
Chris Moran, a tax attorney for law firm Venable LLP, said, “the IRS guidance seems to be inconsistent with congressional intent” in the CARES Act, which created PPP loans for businesses struggling from the pandemic. The law stated that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Josh Migdal is partner with th Florida boutique litigation law firm Mark Migdal & Hayden. As a trusted counselor and assertive commercial litigator, Josh represents clients in multiple jurisdictions and is known for his work on behalf of the FDIC in the wake of the mortgage meltdown.
Christopher Rentrop is professor of business information technology and controlling at UAS Constance, in Germany.
Mike Fleck is vice president of security at Covata Limited, where he is responsible for managing and directing US operations and brand awareness, credibility and thought leadership related to data security and privacy. He joined Covata in 2017, by way of acquisition. In 2010, he co-founded CipherPoint Software and has since served as its CEO. In efforts to remove the complexity often accompanying cybersecurity, Mike is driving his clients to focus on reducing risk, not administering products. With nearly 15 years of experience in data security and encryption, Mike holds patents for transparent encryption and automated encryption key management. His vast experience with complex Fortune 500 and Federal Government environments includes leadership roles at Vormetric (acquired by Thales), High Tower Software (acquired by NetForensics), Predictive Systems (NASDAQ: PRDS), and Lockheed Martin.
Excluding the forgiven loan from tax “is essentially meaningless if the expenses funded by the loan are nondeductible,” Moran said.
Still, many taxpayers aren’t expecting to get permission to claim the deductions, from the IRS or Congress, in the short term.
“I think most of them are, at least for now, resigned” to not getting the write-offs, Joe Kristan, a partner at the accounting firm Eide Bailly LLP in Des Moines, Iowa. “They’d certainly like to be allowed by Congress to step in and allow their deductions, but they’re not counting on it.”