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.
Kevin Cumley is director of the Sage Intacct accountants program where he is responsible for managing the BPO/outsourcing channel in partnership with CPA.com (an AICPA company). He started his career in public accounting during the 1980s implementing the first generation of PC-based accounting systems for small to midsized organizations. Cumley then founded and was president of Forepoint, an award-winning reseller of accounting software, which over the next 20 years became one of the largest and most successful VAR’s in North America and was consistently ranked as a Top 100 firm. For several years prior to joining Sage Intacct he was an executive with Abila developing and building programs for channel partners and the CPA industry.
Cumley has over 30 years of experience in the technology industry providing ERP, CRM and HRMS solutions to small and midsized companies and is recognized as a leading expert in outsourced accounting using cloud financial solutions. He was also a founding member of the Information Technology Alliance, where he served on the Board of Directors and was board chair, along with being instrumental in developing several key initiatives while there including the project management and leadership development programs.
Cumley is a regular speaker at industry conferences and has delivered presentations on a wide variety of topics including cloud solutions, outsourced accounting, mergers and acquisitions, project management, technology trends, process improvement, and business development.
Jim Fitzpatrick is president and CEO of NICSA
Whitfield Athey is CEO of Delta Data, a solutions provider to mutual fund back-office operations.
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.”