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.
Dror Pockard is Chief Strategy Officer at Earnix. He has over 30 years of experience building and leading start-ups, and in senior executive roles in large global companies. His expertise lies in strategy, business development, and M&A.
Prior to joining Earnix, Dror was CEO of Colibri Spindles Ltd., a company focused on connecting Industry 4.0 manufacturing devices with the emerging Internet of Things (IoT) market. Prior to that, he was CEO of eGlue Business Technologies, a start-up in the real-time interaction/next-best-offer space. And prior to that, he was CEO of Telrad Ltd. a telecom products and services company.
Earlier in his career, Dror held several leadership roles at Amdocs Inc., including: head of their Consulting and Systems Integration Organization, and president of the CRM division. Dror also established the Israeli office of Ernst Young Management Consulting and managed it for 3 years.
Dror holds an MBA in Information Systems and a BA in Management and Economics from Tel Aviv University, Israel. He is a mentor in the Israeli Microsoft Accelerator, and is a board member of the Branco Weiss Institute and Yuvalim, two charities in the education space.
Ifty Kerzner is President and Co-Founder of Kissterra, the world's first insurance marketing operating system. A skilled tech entrepreneur in the financial service and data management sectors, Ifty's passion for business, innovation, and people led him to found several companies. Prior to his career in tech and business, Ifty was part of the Israeli entertainment industry, as both a popular singer/songwriter and host of a TV show. He holds an LLB with distinction, an M.A. in Political Science, and is also a graduate of the Lyndon B. Johnson School of Public Affairs' Leadership Program.
David Howard is executive director of the National Rental Home Council.
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.”