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.
Nachiketa Mitra is vice president of payments for Cognizant.
Gil Mermelstein is a managing director of West Monroe Partners and a member of the Executive Committee. He's responsible for developing and expanding the company's presence in New York and the U.S. East Coast, as well as advancing the company's alliance with BearingPoint Europe.
Douglas Meal is partner at Ropes & Gray, representing companies in complex transaction-related disputes arising from all varieties of business agreements. Most recently, he has played a leading role in the firm�s privacy and data security practice, specializing particularly in representing clients targeted by litigation and government investigations stemming from highly publicized data security breaches.As the lead outside lawyer handling claims stemming from the data security breaches suffered by Sony, Heartland Payment Systems, The TJX Companies, Nationwide, Hannaford Brothers, Aldo, Genesco, and Wyndham Hotels � some of the most highly publicized data security breaches in recent years � Meal has become the national leader in defending companies that suffer significant data security breaches involving consumer information against the ensuing claims and regulatory investigations.
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.”