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.
Anthony Macciola is chief innovation officer at North Carolina-based ABBYY, a global digital intelligence company. He holds more than 45 patents for technologies in mobility, text analytics, image processing, and process automation and is leading AI initiatives at ABBYY.
Marc Staut is chief innovation and technology officer at Boomer Consulting Inc.
Justin Turner is VP of Strategic Partnerships - Shipping (Global) at Cover Genius, the insurtech for embedded insurance that protects the global customers of the world’s largest digital companies including Booking Holdings, Descartes ShipRush and Intuit. XCover is also available at Amazon, eBay, and Shopee. In his role, Justin is responsible for leading and executing the company’s logistics strategy and creating value for partners by delivering a seamless insurance experience for their customers. Prior to Cover Genius, Justin was the Asia Pacific Head of Sales and Operational Marketing at Neopost Shipping and the Regional Chief Executive of global logistics companies Pacific Network and GP Logistics where he was responsible for leading the sales and operation teams and executing the company’s strategic direction. Justin has an executive MBA from RMIT University and dedicates time to volunteer as Vice President of his local community football club and as a contributor to the Surf Lifesaving Association.
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.”