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.
Justin Fitzpatrick is co-founder and chief innovation officer of Income Lab. Before Income Lab, he spent 10 years in financial services sales, distribution and management. Earlier, he spent seven years in academia. He has taught at the Massachusetts Institute of Technology; Harvard University; Queen Mary, University of London; and the University of California, Los Angeles. He is a Chartered Financial Analyst Charterholder and a Certified Financial Planner professional.
Brian Fritzsche is assistant vice president and regulatory counsel at the Consumer Bankers Association.
Sandee Perfetto is senior personal lines coverage director for Verisk’s Underwriting Solutions. Perfetto leads a team of personal lines and farm insurance professionals in using customer feedback, market knowledge, and business intelligence to drive the creation of new coverage products, and to maintain and enhance Underwriting Solutions existing programs. Over the years, Perfetto has helped develop a number of new personal lines products, and currently leads the personal lines development of insurance solutions for the sharing economy, millennials, autonomous vehicles, cyber and cannabis. Perfetto began her career at Verisk in the personal lines division. She graduated with a bachelor of science degree in insurance and finance from the University of Hartford and earned a master of science degree in education from Queens College. Sandee can be reached at Sandee.Perfetto@verisk.com.
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.”