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.
John Boyd is principal in The Boyd Company, Inc., independent location counsel to leading U.S. and overseas corporations.
Christine Parker is vice president and financial services industry market lead for Pegasystems.
Mr. Belinsky joined Frasca & Associates in 2011 and has more than 30 years of government and finance experience, specializing in financial, strategic, and transactional advisory for airports and infrastructure development projects. Mr. Belinsky currently leads Frasca’s P3 financial advisory efforts. Mr. Belinsky had a significant role in the LaGuardia CTB $4 billion Replacement Project for Frasca.He is advising the Los Angeles World Airports on its $5.5 billion P3 Landside Access Modernization Program, the San Diego Regional Airport Authority on its new FIS facility and ADP project. He has advised the City of Kansas City ATAG committee on future Terminal development at MCI.As part of these projects, Mr. Belinsky has reviewed and evaluated capital programs, financing structures and assisted in the development of alternative financing structures as well as the procurement process.
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.”