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.
Peter J. Scalise serves as the national partner-in-charge of the federal tax credits and incentives practice at Sax LLP and a member of the board of directors at the Sax Charitable Foundation. He also serves as a philanthropist and chairman for several boards of governors, boards of directors and boards of advisors for local, regional and national charities in connection to poverty and hunger alleviation; humanitarian relief; economic development; environmental conservation; health and social services; supporting veteran and military service personnel along with preserving arts and cultural programs. He is the founding chairman and creator of many philanthropic campaigns, including the Alzheimer's Association's Accounting Industry Leadership Council; the American Cancer Society's Accountants United to End Cancer Council; the USO's Accountants Salute the Troops Council; and The Food Bank For New York City's Accountants United to End Food Insecurity Council.
Jordan Stutts is a New York-based reporter covering national and regional banks and how the finance industry impacts society. Before joining American Banker, Jordan covered private equity at PEI Media. His journalism career began at Qcitymetro, a local news publication based in Charlotte, North Carolina.
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.”