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.
Patrick McCoy is the Director of Finance at the Metropolitan Transportation Authority (MTA) in New York where he manages the Authority's debt portfolio (currently $35 billion) and directs the issuance of over $2 billion in tax-exempt municipal bonds annually under the Authority's multi credit borrowing structure. The MTA is an active issuer of debt obligations to finance the bond funded portion of MTA's Capital Program. Pat has previously served as the Executive Director of the New York City Municipal Water Finance Authority, a public benefit corporation of the City of New York that provides capital financing for the City's water and sewer system. Pat was Executive Director of New York Water from January 2007 through August 2008.Previous positions include:Deputy Director of Finance for the MTA, 2002 through 2004, and Director of Finance, 2004 — 2007.Manager of Investor Relations for the NewPower Company, a publicly traded retail energy provider headquartered in Purchase, New York. Mr. McCoy was involved in NewPower's initial public offering and listing on the New York Stock Exchange. 2001 — 2001.Manager of Investor Relations for the New York City Municipal Water Finance Authority, the Transitional Finance Authority (TFA) and TSASC, Inc. (Tobacco Securitization), 1994 — 2000. Pat created the first investor relations program for the Authority.Senior Budget Analyst, Office of Management and Budget, Community Development Unit. 1991 — 1994.Pat currently serves on the Board of Directors of the Westchester County Health Care Corporation and on the Executive Board of the Government Finance Officer'sAssociation of the United States and Canada (GFOA).Pat holds a M.S. Degree in Urban Policy Analysis and Management from the New School University in New York, and a B.A. from St. Ambrose University in Davenport, Iowa.
Leslie M. Norwood is Managing Director and Associate General Counsel of the Securities Industry and Financial Markets Association. She has served the Association or its predecessor organizations for over 10 years. As the Co-Head of the Municipal Securities Division, Ms. Norwood is responsible for the legal, regulatory and market practice initiatives of the Association relating to all municipal securities products.Prior to joining the Association, Ms. Norwood was an Associate in the Corporate and Securities department at Greenberg Traurig. She also spent 6 years as an Associate in the Public Finance department of Sidley Austin LLP (formerly known as Brown & Wood LLP) where she represented bond issuers, borrowers and underwriters in fixed and variable rate transactions; general obligation, subject to appropriation and revenue bond (public power, education, health care and cultural institutions) transactions; and transactions with credit enhancement. Ms. Norwood received a B.A. from the University of California, Berkeley and her J.D. from Boston University School of Law. She is a member of the New York, New Jersey and California Bars.
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.”