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.
Benjamin Döpfner is the CEO of Vesto.
Daniel J. McMahon, CPA, is the founder and managing partner of Integrated Growth Advisors (IGA), a value creation and growth advisory firm focused on empowering business leaders to systematically enhance their revenues, profitability, sustainability and value. IGA creates sustainability, transferability and wealth for business owners by addressing common issues relating to growth, control and transition of ownership. IGA has been serving clients throughout the U.S. since 2011.
Shawn Degnan leads Cross Country Consulting's National Accounting Advisory practice and the Washington, D.C. office, where he is responsible for the overall strategy, client delivery and people, as well as practice and business development. In this role, he guides service delivery for private and public companies, ranging from growth-oriented venture capital and private equity backed businesses to Fortune 500 companies. He brings more than 20 years of experience advising clients on complex technical accounting issues and strategic transactions, including initial public offerings, mergers and acquisitions, carve-outs, and spinoffs. Prior to joining Cross Country, he spent nine years at MorganFranklin Consulting as managing director and commercial market leader guiding all aspects of the firm's commercial practice. He spent the first 12 years of his career with EY in its global capital markets and assurance practices leading delivery of both audit and advisory engagements for large, global SEC registrants and private companies.
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.”