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.
Wei is a Director with Simon-Kucher & Partners, and holds joint appointment in the New York and Toronto offices. He specializes in strategic issues at the marketing-operations interface. Wei's primary consulting focus is on pricing, marketing, and risk analytics topics with large financial institutions in the US, Canada, and Europe.Besides financial services, Wei has developed customer-centric pricing and marketing optimization solutions for a department store chain and an entertainment company in the US. He has also developed optimization solutions for clients in self-storage, healthcare, shipping, and solar energy industries.Wei has been published in leading banking journals, including American Banker BankThink, Bank Accounting & Finance, and BAI Banking Strategies. He has also co-authored MBA teaching cases on retail pricing, currently in use at Columbia Business School and NYU Stern School of Business.Wei received a PhD in Decision, Risk, and Operations from Columbia Business School, and a BS in Electrical Engineering & Applied Mathematics, summa cum laude, from Columbia University.
Guis is chief strategy officer at Egnyte.
Mastrogiacomo is director of architecture and design at SPHERE Technology Solutions. Prior to joining SPHERE, Mastrogiacomo held high-level positions at multiple financial services organizations managing technology groups charged with core infrastructure, and end-user products.
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.”