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.
Malik Javed is a principal and oversees engineering operations for cost segregation projects at KBKG. He is a certified member of the American Society of Cost Segregation Professionals (ASCSP) and is currently a member of the ASCSP Technical Standards Committee. Since joining KBKG in 2004, he has performed thousands of cost segregation studies for clients in various industries, regularly reviewed architectural and engineering drawings and construction cost budgets. He has provided continuing professional education to hundreds of CPAs across the country on various real estate tax issues. He has also successfully represented KBKG’s clients in an IRS audit.
As Research Director of Aite Group’s Retail Banking & Payments practice, Julie Conroy covers fraud, data security, and anti-money laundering issues. She has more than a decade of hands-on product management experience working with financial institutions, payments processors, and risk management companies, including a number of years leading the product team at Early Warning Services. Julie is often quoted in numerous media outlets, including The Wall Street Journal, U.S News and World Report, American Banker, and the New York Times.� Julie is fluent in Spanish and holds an M.A. in International Policy from the Monterey Institute of International Studies and a B.A. in Business Administration from the Michigan State University Honors College.�
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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.”