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.
Mainul is the founder and CEO of Ellipsis Health, whose clinical AI agent Sage is already working alongside care teams to automate outreach, continuously monitor high-risk patients between visits, and surface actionable insights that help care managers prioritize the right interventions at the right time. A prominent voice in the CMS Health Tech Ecosystem, Mainul is a signatory to the White House-backed pledge to build responsible, interoperable conversational AI. He was a Rockefeller Fellow and a contributing member of the World Economic Forum. Mainul has shared his vision for the intersection of technology and human empathy as a lecturer at Stanford University, the University of California, and the Indian Institutes of Technology.
Jessica Martinez is the U.S. policy director at Fireblocks. Previously she served as senior director of government relations at the Blockchain Association, staff director of the U.S. Congress Joint Economic Committee, partner at Franklin Square Group, legislative director and deputy chief of staff in the U.S. House, and special advisor at the Federal Communications Commission.
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.”