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.
Delaney is vice president, retirement insights at T. Rowe Price.
Thomas M. Long, is managing editor for the Federal Tax News Group, with Thomson Reuters Checkpoint within the Thomson Reuters Tax & Accounting business. Tom is a member of the New Jersey and New York bars, with over 30 years in tax publishing. He is a federal tax generalist who is primarily responsible for writing daily tax news articles for Federal Taxes Weekly Alert. He holds a B.A. in English literature from Rutgers University, a J.D. from New York Law School, and an LL.M. in Taxation from New York University.
Catherine Murray, J.D., LL.M. is a senior tax analyst with Thomson Reuters Checkpoint within the Thomson Reuters Tax & Accounting business. Catherine is a federal tax generalist who focuses primarily on writing current awareness tax news articles for Federal Taxes Weekly Alert and also serves as the Project Editor for the Federal Tax Handbook. Catherine completed her B.M. at DePaul University, her J.D. at the Benjamin N. Cardozo School of Law, and her LL.M. in Taxation at New York Law School.
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.”