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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Dr. Bart Hildreth is professor and former dean at the Andrew Young School of Policy Studies at Georgia State University in Atlanta. Previously, Bart spent 30 years as a business school professor at Wichita State University (including interim business dean), LSU, and Kent State. His expertise is state and local finance, with a specific focus on municipal securities and tax policy.He is a public member of the Board of Directors of the Municipal Securities Rulemaking Board (2012-2015). He has served on the National Advisory Council on State and Local Budgeting and the Governmental Accounting Standards Advisory Council, received two gubernatorial appointments to serve on the board of the Kansas Development Finance Authority, chaired a state-wide tax review committee, served on several GFOA national committees (including the disclosure task forces), and held the position of Director of Finance for the City of Akron, Ohio where he had financial responsibility for the successful workout of a technical default on a waste-to-energy facility.Since 1989, he has served as the editor-in-chief of the only refereed journal devoted to municipal securities, the Municipal Finance Journal. In addition to numerous journal articles and books, his publications include State and Local Government Debt Issuance and Management, the Handbook on Taxation, and Budgeting: Politics and Power (Oxford University Press, 2010).A Fulbright Scholar (at McGill University, Montreal), he also received the 2008 national award for lifetime scholarly achievement in the field of public budgeting and financial management. Bart�s degrees are from the University of Alabama (B.A.), Auburn University at Montgomery (M.P.A) and the University of Georgia (Ph.D.).
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.”