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.
Laura is an attorney with SMB Law Group. She is a tax and corporate lawyer with more than a decade of experience advising companies on the tax aspects of a wide range of M&A and capital markets transactions, negotiating partnership agreements, and advising companies on day-to-day tax and corporate issues.
Garret Gray is the President of CoreLogic's Global Insurance Solutions Business. He leads a team of industry experts focused on building market-driven solutions that drive better customer outcomes throughout the property insurance ecosystem.
Prior to this, Gray was the founder and CEO of Next Gear Solutions, acquired by CoreLogic in September 2021. Next Gear is an industry-leading provider of claims workflow technology used by eight of the top ten US carriers. Next Gear restoration management solutions are used by four out of the top five contractor brands in addition to more than 10,000 contractors in North America.
Shannon Shallcross is a Tedx speaker and has coached dozens of data and insurtech startups, advising Fortune 500 clients on analytics strategy as head of client management for a national health-tech company and co-founder of BetaXAnalytics, a company that pioneered emerging data science techniques using AI to remove the barriers to transparent and actionable data. She also spent 12 years with Amica Insurance running branch sales and service operations across the country. Currently, she is head of client services at Pinpoint.
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.”