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.
Brice Luetkemeyer is president and CEO the Bank of St. Elizabeth in Missouri, where he has served in various leadership roles for the past three decades. During his 41 years in banking, Luetkemeyer was also a bank examiner with the Missouri Division of Finance from 1978 to 1988.
Samuel Dibble is a partner at Baker Botts.
Gabrielle M. Luoma, CPA, CGMA, founder and visionary of MOD Ventures, began building her business in 2004 in the living room of her own home. The MOD Ventures firm is unique in that it was built upon the aspiration to not only help businesses grow, but to change the way they see accounting, taxes, day-to-day business operations, and their big-picture vision. Luoma is currently working on her third book, this time for CPAs who are also passionate about innovation. When Luoma isn’t innovating, she can be found rooting on her youngest daughter in her cheer competitions, dreaming, drinking coffee, or watching Game of Thrones. Luoma graduated from New Mexico State University with a bachelor of accountancy and is an advisor for the accounting department at Pima Community College and an executive committee member of the PCPS section of the AICPA.
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.”