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.
Lauren Saunders is the associate director of the National Consumer Law Center, and directs its federal advocacy program.
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Rina Pandalai is currently the Financial Services Strategy lead for Publicis.Sapient where she is charged with building out the FS Strategy practice along with overseeing all aspects of Thought Leadership and IP as it pertains to FS. She joined Publicis.Sapient in 2016 after 14 years at Citi’s Consumer Bank, where she held a number of Strategy and Execution roles across Cards, Wealth, and Retail Banking. Most recently, she was a Managing Director leading the Consumer Banking Transformation office where she managed the business’ strategy to pivot from a traditional brick and mortar bank to a Digital Enterprise. Prior to Citi, Rina worked at Navigant Consulting in San Francisco, where she was a Senior Consultant leading e-commerce and consumer product engagements. While in San Francisco, Rina also worked for a start-up called Vendio.com (now part of Alibaba) where she led their business development efforts. Before earning her MBA from Chicago’s Booth School of Business, she worked at Goldman Sachs Corporate Finance and Equity Research teams in both NY and Zurich respectively. Rina also has a B.S. from NYU’s Stern School of Business.
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.”