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.
Scott Alan Miller is a technical fellow at Niagara Technology Group, an IT services firm specializing in the SMB market.
Gaurav D. Garg is the Chief Executive Officer of Personal Insurance for AIG. This business is comprised of High Net Worth/Private Client Group, Personal Accident and Supplemental Health, Personal Property, Personal Auto, Travel and Assistance Services, Extended Warranty and Service Programs.
Gaurav joined AIG in April 2015 and serves as Director on several boards of AIG Companies and is a Corporate Officer & SVP at AIG Inc. He also represents AIG as Vice Chairman of the Board of Directors for Blue Marble Micro Insurance and as Chairman of the Insurance Subcommittee at the U.S.-India Business Council. Gaurav has recently joined the American Insurance Association Personal Lines Executive Council.
Prior to joining AIG, Gaurav was a Senior Partner at Mercer in New York and on the Executive Committee. He served as President for Mercer’s Growth Markets Region. He first joined AIG in 2000 and held various management and leadership positions across AIG’s Personal Line insurance business. He also served as the Chief Executive Officer and Managing Director of Tata AIG from 2007 to 2012.
Gaurav holds a Master’s Degree in Business Administration and has completed the Advanced Management Program from Wharton, University of Pennsylvania.
Nate Blair is a partner at Palo Alto Wealth Advisors.
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.”