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.
Gregg Bienstock is the Co-Founder of BKC Group, a market infrastructure and strategic advisory firm focused on the modernization of the municipal market. He was the Co-Founder and CEO of Lumesis, which was acquired by SOLVE. Earlier, Gregg held senior leadership roles at Ambac Financial Group. He advises financial institutions on data strategy, compliance architecture, digital infrastructure, and next-generation market systems, and is a frequent speaker on the role of technology in reshaping, modernizing, and re-architecting regulated markets.
Misty Megia is the head of accounting education and programs at TSheets.com, an employee time-tracking app on apps.com. She has over 20 years’ experience in market strategy, project management, public speaking, corporate branding, and channel marketing. Misty has driven success for companies across a variety of industries from hardware manufacturing to education and the accounting profession. Outside of her corporate life of travel and strategy, she is a performer, director and choreographer for live theater.
Kerpen focuses her practice on employee benefits tax and Employee Retirement Income Security Act matters related to 401(k), pension, health and welfare, and executive compensation plans, including designing, amending, and administering such plans.
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.”