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.
J. Henning Buchholz is a strategic initiatives, transformation and M&A leader who supports global organizations in unlocking value through strategic transactions and enterprise change. As a principal with Deloitte Consulting's M&A practice and co-leader of the U.S. divestitures & separations group, he advises global life sciences, technology, and other organizations on reshaping portfolios, driving growth and unlocking operational value through complex transactions and enterprise transformations.
Erin DeHaven is a partner with Deloitte Tax LLP in the transaction & integration services practice. She assists clients in addressing their comprehensive tax responsibilities, including tax technical, departmental operations and business process considerations during corporate life events, such as mergers, acquisitions, divestitures and legal entity rationalizations. Her experience includes transaction planning, consolidated group transactions, carve-out tax accounting, continuing operations calculations and project management. She has more than 12 years of experience assisting multinational corporations with their federal, state and international tax compliance and tax planning considerations, including ASC 740 and related accounting matters.
Ryan Stecz is a partner with Deloitte Tax LLP in the M&A transaction services practice, based in Chicago. He has more than 20 years of public accounting experience including more than 15 years as a dedicated M&A specialist. He has experience in advising financial and strategic buyers on due diligence and deal structuring in a range of industries including consumer and industrial products, health care and technology. He has significant experience advising clients on sell side transactions including the preparation of carve-out financial statements, vendor due diligence reports, tax structuring and modeling exercises, and the tax implications associated with selling S corporations.
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.”