Congress blasts IRS for limits on forgiven PPP loan tax breaks

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.

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.

wyden-ron-grassley-chuck-senate.jpg
Sen. Ron Wyden, D-Oregon, and Chuck Grassley, R-Iowa
Mark Wilson/Getty Images

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.

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE
Adrian Johnstone of Practifi

Adrian Johnstone is the CEO and co-founder of Practifi, a performance optimization platform for the wealth management industry.

With over 20 years of experience helping advisory firms leverage technology for growth, he offers deep insight into advisors' every day needs. A regular speaker at industry events in Australia and the U.S., Johnstone is dedicated to building relationships and driving innovation in wealth management.

Amy Matsuo

Amy Matsuo is a nationally recognized leader in risk, regulatory, and compliance advisory, currently heading KPMG Regulatory Insights and Compliance Transformation solutions. Her team issues regulatory analysis and insights to over 30,000 client subscribers and supports service professionals across the firm's Audit, Tax and Advisory practices.  With more than 25 years of experience in both industry and consulting, she advises large domestic and global clients on navigating dynamic and complex regulatory landscapes.

Eric Edwards

As a Senior Relationship Manager for CannGen, a leading cannabis insurance carrier, Eric Edwards specializes in supporting clients across the evolving THC-infused beverage space. With a background as an insurance broker in the cannabis, hemp, and CBD sectors, he brings deep industry insight and a collaborative approach to helping brokers navigate coverage challenges and place business, enabling insureds to grow with confidence in a complex and highly regulated market.

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.”