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.
Alexander D. Weidner, CPA, CFE, is president at Rudler PSC, an independent accounting firm in the Greater Cincinnati area. Weidner is focused on strengthening Rudler's unique culture and evolving the firm to provide more value to clients. He started as an intern in 2007 and worked his way up to shareholder. He played an integral role in developing Rudler's Client Advisory Services department, which aims to create more value added services for clients. He likes to focus on nonprofits, closely held businesses and high-net worth individuals, and leverages his Certified Fraud Examiner designation to assist clients with fraud investigations and designing controls to reduce risk of fraud.
Ken Eyler is CEO of Aquilance (formerly My Accountant), which advises multi- and single-family offices and select business enterprises.
Previously, he spent more than a decade in a senior executive role and member of Arthur Bell, an international CPA and advisory firm focused exclusively on high net worth families and alternative investment vehicles. He serves on the boards of Argonne Trust Company and Sustainability Angels, a nonprofit focusing on environmental stewardship and luxury recycling.
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.”