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.
Bill Curtis, CPA, is partner-in-charge of the Birmingham office of Mauldin & Jenkins CPAs & Advisors and leads the firm’s efforts in Alabama. He joined Mauldin & Jenkins in 2004, after working for AmSouth Bank and Cade and Associates. He has over 15 years of auditing and consulting experience. As a partner in the firm’s Financial Institutions practice, Curtis specializes in opinion audits and tax services for private as well as SEC registered companies, internal control opinion audits, and internal audits, and benefit plan audits. In addition to serving his financial institution clients, Curtis is responsible for auditing numerous 401(k) and employee stock ownership plans (ESOPs). He serves on the firm’s Leadership and Career Development Committee and LEAP Conference Committee. Curtis is a CPA in the states of Alabama and Georgia. He is a member of the American Institute of CPAs, the Alabama Society of CPAs, the Georgia Society of CPAs, Birmingham Young CPAs, Alabama Banking School faculty, and he serves on the board of directors for Community Kitchens of Birmingham.
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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.”