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.
Lei Zhang is the founder and has served as the chief executive officer and chairman of the board of Cheche Group (NASDAQ: CCG). Before that, he served as chief executive officer of CloudPower Technology Co., Ltd. from 2010 to 2014. He was a senior manager in the global technology service department at Huawei Technologies Co., Ltd. from 2001 to 2006. Zhang received a bachelor's degree in computer science and technology from Wuhan University of Technology in 2001.
Amy Glorioso joined Kelly Benefits Payroll in 2022 with nearly 30 years of experience in the payroll industry. In her current role as Vice President of Client Engagement, Amy is responsible for ensuring that all payrolls are delivered timely and accurately as well as team development and client retention. Using her expertise in payroll procedures, best practices and compliance, she also is tasked with identifying and implementing process improvement and enhancements that ensure the best experience possible for clients.
Joseph H. Neely is a former director of the FDIC and career banker. He is president of Neely and Associates, a consulting firm advising banks on regulatory and strategic matters.
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.”