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.
Adam Olsen is FAAS practice leader and national quality leader at Embark.
Steve Prymas has over twenty years of Professional Liability experience. He was previously the Vice President, Specialty Lines Manager and Global Chief Underwriting Officer of Cyber for Gen Re where he was charged with setting strategy and growing specialty lines across Treaty and Facultative reinsurance. While at The Hartford, Steve was responsible for strategic direction, underwriting staff, and P&L of The Hartford’s management & professional liability business. His experience also includes the introduction of predictive modeling, objective risk tiering, third party data proxies, online quoting and automated cross-selling. He also chaired The Hartford's enterprise-wide Cyber Working Group.
In addition to his roles at HFP and Gen Re, Steve has spoken at and chaired several PLUS and Advisen events.
Steve’s passion for insurance started at the early age of 13 when he made change for homeowners’ payments at the petty cash register of a local insurance agency.
Steve is a graduate of Hamilton College and member of the Professional Liability Underwriting Society.
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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.”