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.
Patrick Murray is president and CEO of STP Investment Services, a technology-enabled services company that provides solutions to investment managers, funds, family offices, wealth managers and plan sponsors with clients representing more than $330 billion in assets serviced. As founder, it was Patrick’s vision of building a world-class, client-centric, software-driven solutions provider for investment managers’ front, middle, and back-office challenges that led to the creation of STP and then recruiting the balance of the global team.
D Sharma is the Co-Founder and CEO of Wellness Coach, a workplace wellness platform that provides on-demand access to a vast library of tools, including guided meditations, workout videos, and sleep music. Wellness Coach also offers live classes that allow users to connect with doctors and experts in real-time.
Anders Fohlin has been CFO of Medius since 2014. Before joining Medius, he was vice president of finance and accounting at Klarna Group and vice president of business control at Nasdaq OMX. Previously, he had several years of experience with Cision, Accenture and Acando.
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.”