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.
Dr. David A. Wood is passionate about understanding new technologies and implementing them into the curriculum of Brigham Young University, where he works as the Glenn D. Ardis professor of accounting. He has published over 200 articles in a combination of respected academic and practitioner journals, monographs, books, and cases, including a recently released book on AI titled, "Rewiring your Mind for AI: How to Think, Work, and Thrive in the Age of Intelligence". He has helped companies and organizations around the world learn about and implement GenAI and other tech topics. He was previously named by Accounting Today as one of the 100 most influential people in accounting. He is a cocreator of a free generative AI governance framework (see http://genai.global/), and of two companies related to GenAI training and reviewing Excel workpapers (http://skillabyte.com/ and https://hiddenhawkai.com/).
Dr. Becca Baaske is an Assistant Professor of Accounting in the Sykes College of Business at the University of Tampa. She brings practical experience from both public accounting, having worked as an auditor at PwC Chicago, and corporate accounting, where she served as staff at the former John Marshall Law School. Her research primarily contributes to the auditing and accounting information systems (AIS) judgment and decision-making literature, with a focus on experimental methodology. Specifically, much of her work examines how auditors may overlook risks or audit issues due to insufficient skill sets related to data or limitations in skeptical cognitive processing. Additionally, she contributes to the accounting education literature, exploring topics such as motivation, learning, and initiatives aimed at strengthening the accounting pipeline. She has published in academic journals such as Auditing: A Journal of Practice & Theory, Journal of Information Systems, and Accounting Horizons.
Colin McNamara is an editorial intern at American Banker via the Dow Jones News Fund. He recently graduated with a bachelor's degree in journalism and minor in general business from the University of Maryland, where he covered politics at Capital News Service and college sports as the managing editor of Testudo Times. He interned or freelanced for a variety of other publications, including The Baltimore Sun.
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.”