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.
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Warren Zafrin is a leader of the risk advisory group at accounting, audit and consulting firm UHY Advisors. He has over 25 years of capital markets and technology strategy experience. Over the course of his career, Mr. Zafrin has supported many of the largest companies in the world and has managed project teams across the US, Canada, Europe, and Asia.
Alex Klein, CPA, is a solution consultant at LeaseAccelerator. Alex works closely with partners at Genpact, RGP, PwC and EY to design solutions for mutual clients. Prior to joining LeaseAccelerator, Alex held finance and accounting leadership roles at various technology and telecommunications firms including Eloqua, Sprint Nextel, and MCI. His experience in vice president, controller, and director-level roles has provided him with a diverse range of experience managing every aspect of finance organizations from accounting and cash management to budgeting and financial planning. Additionally, Alex has extensive financial systems experience implementing numerous ERP, general ledger, accounts payable, and financial reporting systems.
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.”