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.
Steven T. Dennis is a reporter with Bloomberg News.
Reid is the president of Reid Group Enterprises, which includes twentytwenty Insurance Services, Broker Self Insurance Solutions and AISLe20. Starting her career with Great West Life, Reid has worked with self-insured plans for more than 35 years. Through Broker Self Insurance Solutions, Reid works with other brokers, helping them consider and manage self-insured plans. Reid built AISle20 in 2014, a private exchange open to independent brokers. As an industry leader, Reid has been featured as a key speaker and educator on various topics that bring innovative ideas and 21st Century technology to employers. As a board member for the Los Angeles Association of Health Underwriters and the 2013 Paladin Award winner, she believes it is critical for independent brokers and agents to work together to inspire action to achieve success. Please contact Reid for more information on self-insurance and private exchanges at (562) 429-6038.
Orla McCaffrey is a Seattle-based reporter covering national and regional banks. Before joining American Banker in 2022, she worked at The Wall Street Journal, where she covered banking and housing finance. She is a graduate of Binghamton University and the Craig Newmark Graduate School of Journalism at CUNY.
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.”