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.
Sarah Swanbeck is a public policy analyst with expertise in California state and local governance and budget issues. She previously worked in Legislative Affairs for California Common Cause, a nonprofit that advocates for more open, honest, and accountable government. Outside the realm of California politics, Sarah has spent years working as a policy analyst on both state and local issues. As an analyst for the Controller in San Francisco, she worked with a range of city departments to improve the efficiency and effectiveness of their services. She also previously worked for the Public Policy Institute of California and the the California Public Utilities Commission on state energy and water policy. She holds an MPP from the Goldman School of Public Policy at UC Berkeley and a BA in Economics from Wellesley College.
Sarah Anzia is a political scientist who studies American politics with a focus on state and local government, elections, interest groups, political parties, and public policy. Her book, Timing and Turnout: How Off-Cycle Elections Favor Organized Groups, examines how the timing of elections can be manipulated to affect both voter turnout and the composition of the electorate, which, in turn, affects election outcomes and public policy. She also studies the role of government employees and public-sector unions in elections and policymaking in the U.S. In addition, she has written about the politics of public pensions, women in politics, the historical development of electoral institutions, and the power of political party leaders in state legislatures. Her work has been published in the American Political Science Review, the American Journal of Political Science, the Journal of Politics, the Quarterly Journal of Political Science, and Studies in American Political Development. She has a Ph.D. in political science from Stanford University and an M.P.P. from the Harris School at the University of Chicago.
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.”