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.
Sathish Kumar Manimuthu serves as the CTO at NeuralMetrics, an insurtech offering AI-powered risk-assessment intelligence for P&C carriers, brokers, and agents. With experience in launching innovative technology and products for startups and Fortune 500 companies, Sathish is responsible for the company's suite of data-delivery engines and AI models.
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Heather Sullivan is the North American Strategy lead for Accenture's Insurance practice, where she spends her time driving new business endeavors on behalf of carriers, brokers, MGAs, private equity organizations and start-ups. She helps organizations understand agency needs, wants, desires, motivators and, ultimately, how to achieve market success. Heather holds a bachelor's degree from University of Southern California. Heather serves several global roles within Accenture, including as the executive sponsor for Accenture's Insurance Strategy diversity and inclusion efforts. Heather resides in Chicago with her husband, daughter and son, and very lively Portuguese Water Dog.
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.”