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.
Jamie Topolski currently is the Director of Alternative Payment Strategies at Fiserv. He is focused on delivering a cost-effective, comprehensive and integrated solution for clients migrating from magnetic stripe to EMV™ chip cards. Jamie currently serves on the Smart Card Alliance Payments Council Steering Committee and is the Vice Chair of the EMV Migration Forum Steering Committee.Previously, Jamie served on the EMVCo Board of Advisors and was the Manager of Global EMV Programs for Discover Financial Services. Jamie received his Bachelor of Arts degree from Duke University and Master of Business Administration from the Booth School of Business at the University of Chicago.
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Omair Taher is a senior associate in Grant Thornton LLP’s Washington National Tax Office. He monitors legislative and regulatory tax developments and provides Grant Thornton’s clients with critical information related to those developments through alerts, thought leadership, webcasts, and presentations.
Dustin Stamper is the Tax Legislative Affairs practice leader and a managing director in Grant Thornton LLP’s Washington National Tax Office. He monitors tax legislative and regulatory developments, and identifies planning opportunities and challenges for Grant Thornton’s clients.
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.”