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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I am advising some clients to ladder maturities to lock in more dependable tax-free income streams — especially for those in states with high income taxes, like California.
Les Richmond's role in Build America Mutual’s credit underwriting group is to evaluate the pension and other postemployment benefit plans and liabilities of the municipal entities BAM guarantees.Prior to joining BAM, he was with Hay Group, where he was a Senior Principal. His experience includes project leadership of a four-year engagement to conduct an actuarial audit of the five New York City Retirement Systems.Les currently serves as a member of the Advisory Committee of the National League of Cities’ Public Sector Retirement Initiative. The goals of this new initiative are to develop research on trends, challenges and solutions to local government retirement and healthcare, and to engage and educate city leaders on strategies to achieve greater fiscal sustainability in these areas.He is an Associate of the Society of Actuaries, an Enrolled Actuary, a member of the American Academy of Actuaries, and a Fellow of the Conference of Consulting Actuaries. He holds a B.A. in Mathematics from Rutgers College.
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.”