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.
Mark DiMichael, a partner in the valuation and forensic services department of Citrin Cooperman, specializes in litigation support and valuation services. His areas of expertise include divorce litigation, economic damages analysis, fraud investigation, cryptocurrency, white collar criminal defense, and business appraisals.
Daniel J. Healy is a partner in Anderson Kill's Washington, D.C. office. He started his career with Anderson Kill and then served over five years as a Trial Attorney with the U.S. Department of Justice, Tax Division. He appeared as lead trial counsel in federal and state courts across the country, received numerous Outstanding Attorney awards and served as the E-Discovery Coordinator for the Tax Division.
Krishna Prasad is senior architect for X by 2, a technology consultancy focused on the practice of architecture in the insurance and healthcare industries. Prasad has over 25 years of delivering hands-on experience in areas such as IT strategy and roadmap development, execution planning, and agile delivery leadership for initiatives involving insurance IT modernization. Prasad holds a Bachelor of Science, computer science and eengineering from the Indian Institute of Science, India. He also received a Master of Science, computer science from the University of Cincinnati.
Krish Krishnakanthan is a senior partner at McKinsey.
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.”