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.
Lynn Gallin is the Vice President of Product Marketing at Rightworks, where she leads the strategy and execution of marketing initiatives to deliver innovative solutions for accounting professionals.
Prior to joining Rightworks, Lynn advised numerous leading companies on product strategy and managed extensive marketing research projects focused on branding, positioning, pricing, and communication effectiveness. She has over 20 years of experience in the B2B tech industry, including serving as Vice President of Corporate Partnership Marketing at Southern New Hampshire University in addition to marketing leadership positions at Skillsoft and Newforma. Lynn also successfully ran a market research consulting practice, advising high-tech companies like Microsoft, Yahoo!, and Autodesk.
Cindy Dash is the senior vice president and general manager for Broadridge's Retirement and Workplace division.
Prior to that she was the COO of Matrix, where she successfully led the integration into Broadridge. Prior to her role as COO of Matrix, Dash was general counsel for that firm for more than 10 years.
Mike G. Silver is a partner with the law firm Husch Blackwell. He served as senior counsel to the Consumer Financial Protection Bureau for more than 12 years.
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.”