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.
Angela Ribuffo is president of Women in Insurance and Financial Services.
Carlton 'Carl' Doty leads Forrester’s global research in emerging technologies. He helps Forrester clients assess disruptive technologies and evaluate new ventures that drive business innovation. Prior to this role, Carl founded Forrester’s customer insights practice and led a global research organization that helped B2C and B2B marketers select and implement marketing technologies and services.
Earlier in his tenure, Carl managed Forrester's consumer product strategy practice, where he led a research agenda on product innovation that spawned Forrester's book, Digital Disruption. He began his Forrester career in 2006 as an analyst covering digital channels, healthcare technology, and consumer-directed health plans.
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Rodney Joffe is senior vice president, senior technologist and fellow at Neustar. He has been a sought-after cybersecurity expert who, among other notable accomplishments, leads the Conficker Working Group to protect the world from the Conficker worm. Providing guidance and knowledge to organizations from the United States government to the Internet Corporation of Assigned Names and Numbers (ICANN), Mr. Joffe is a pioneer in the domain name system (DNS) and cybersecurity markets and has demonstrated his expertise in developing new solutions at Neustar such as NeuSentry.
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.”