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.
Anoop Villait is managing director of corporate development at Transpay.
Nathan Horn-Mitchem is senior vice president and chief information security officer at Provident Bank.
Amanda LeClair is an analystat Forrester Research serving the needs of application development and delivery (AD&D) professionals. In this role, she helps clients understand the changing enterprise application services market and navigate the new engagement models of leading technology services firms. In her coverage, she explores business applications ecosystems, digital business transformation trends, and technology services spending patterns. Her research covers topics such as co-innovation, outcome-based services engagements, and the changing role of digital studios in services engagements.
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Prior to her current role as an analyst, Amanda was a researcher on Forrester's AD&D team. In that role, she contributed to Forrester's coverage of agile development and DevOps, led coverage on managing agile teams, and explored the intersection of design and customer experience with software development. She has extensive primary research experience, having served as research lead on Forrester Data's Global Business Technographics® Developer Survey and having conducted hundreds of research interviews with developers, VPs of technology, CIOs, and CTOs. In her role as a research associate, she contributed to Forrester's research on business technology transformation and technology market sizing.
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Amanda holds a B.A. in politics from Saint Anselm College.
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.”