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.
Christian Hagen is a Chicago-based partner in global management consulting firm A.T. Kearney’s Digital Transformation Practice. He specializes in helping clients use information technology to increase efficiencies, improve customer relationships, and gain competitive advantage.
Steven Gortler is a Registered Municipal Advisor based in San Francisco. Steven has many years of public finance experience structuring, marketing and pricing a wide variety of bonds for California cities, redevelopment and successor agencies, counties, school districts and special districts. Previously, Steven was an investment banker with Piper Jaffray; a financial advisor with Kelling, Northcross & Nobriga, Leifer Capital, Caldwell Flores Winters and Wulff, Hansen & Co., a rating analyst with Standard & Poor's; and a tax analyst with the New York City Office of Management & Budget.
A technology strategist, David is vice president of strategy at harmon.ie, provider of the first user experience tools for the digital workplace built to deliver information the way the human brain works. David is also a PhD candidate in information management, exploring information overload experienced by mobile workers, and an international scholar for the Society for the History of Technology.
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.”