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.
Anna E. Mallen is a J.D. candidate at Drake University Law School, Des Moines, Iowa.
John F. Fatino is a member attorney at Whitfield & Eddy Law in Des Moines, Iowa. He counsels financial cooperatives in proactive measures and risk avoidance including client education for board members and senior management regarding corporate governance and employment matters.
Frank Vari, JD, MTax, CPA, is the practice leader of FJV Tax, a CPA firm that specializes in complex international and U.S. tax planning. He can be reached via email at frank.vari@fjvtax.com or telephone at (617) 770-7286 or (800) 685-2324. He began his career in international and corporate tax consulting with Deloitte and KPMG in the Midwest and Dallas. He has also served as senior vice president of tax for a large publicly traded manufacturer as well as a large private equity-owned global publisher. Vari has also been an adjunct professor of taxation to law and business students on international tax and corporate mergers and acquisitions. He is also a frequent speaker and author on complex international tax topics and issues. He is a licensed CPA in Massachusetts and Ohio and a licensed attorney in Ohio and the U.S. Tax Court. His education includes a Bachelor of Science in Accounting, a Master of Taxation, and a Juris Doctorate degree.
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.”