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.
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Carla McCall, CPA, CGMA, is managing partner of AAFCPAs, a 240-person CPA and consulting firm based in New England. She was named one of 2020’s "Most Powerful Women in the Accounting Profession" by the American Institute of CPAs, and was also honored as part of Accounting Today’s Managing Partner Elite List.
Patrick Morrell is the cofounder and chief revenue officer at Anduin, an AI-based billing platform. A veteran sales and marketing leader and technology company founder, he began his career in sales at CEB (now Gartner). He then joined Three Ships, where he led content development and later business development, and then joined Skookum (now Method) where he led inside sales and strategic partnerships as the company scaled (later acquired by GlobalLogic). Sealed Air Corporation then recruited him to build and manage the enterprise's first inside sales team and manage a nine-figure portfolio of commodity products. Morrell then founded and eventually sold a direct-to-consumer ecommerce business, and then cofounded Digitize.AI, a fintech company focused on the health care industry, where he ran sales and marketing. After exiting Digitize.AI (acquired by Waystar), he cofounded Anduin. An avid runner, reader, and basketball fan, he lives in North Carolina with his wife Clay and two children.
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.”