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.
Asier Achutegui is the senior manager at the Microinsurance Network. With more than 15 years of experience in development, Achutegui previously worked in the evaluation, development and design of social inclusion public policy in Latin America and the Caribbean. He has experience in searching for development solutions globally and has worked in budgeting for projects aimed at improving the quality of life for the most vulnerable. In his current role, he is responsible for fundraising, coordinates key events and manages relationships with members from Europe.
Tommy Nicholas is the co-founder and CEO of the identity risk management company Alloy. He is on X at @tommyrva.
Rishi Bharathan is CEO of Indyfin Powered by WiserAdvisor, enabling financial advisors to gather client feedback, ratings and reviews in a 100% compliant way.
With over 25 years in lead generation, digital marketing and information technology, his team has helped financial advisors and enterprise RIAs organically grow their businesses through qualified investor referrals worth over $15 billion in AUM annually. He has led WiserAdvisor through several acquisitions, including the recent acquisition of IndyFin.
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.”