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.
Vinay Nair is the founder and CEO of TIFIN, a fintech platform that drives personalization for wealth using AI and investment intelligence and which operates a collection of fully owned subsidiaries in wealth and investments.
Previously, he was the founder of 55ip, which was sold to J.P. Morgan.
Anila Lahiri is the chief operating officer at EIN Search, a provider of compliance data and solutions. She has extensive expertise in navigating the complex landscape of compliance and her keen insights into data-driven strategies.
Alex Bouaziz is the co-founder and CEO of Deel, the all-in-one HR platform for global teams. Founded in 2019, Deel's technology helps companies simplify every aspect of managing an international workforce, from culture and onboarding, to local payroll and compliance. In just under four years, the company has grown to 3000 team members worldwide in over 100 different countries and raised over $600 million in funding. It has 18,000-plus customers, including Shopify, Nike, and Cloudflare.
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.”