Congress blasts IRS for limiting tax breaks for firms with forgiven PPP loans

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, 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 wont be taxed, but didnt specify whether companies could still write off the expenses they covered with that money.

Excluding the forgiven loan from tax is essentially meaningless if the expenses funded by the loan are nondeductible, Moran said.

[More: Advisers are taking PPP loans for future needs as uncertainty lingers]

Still, many taxpayers arent 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 in Des Moines, Iowa. Theyd certainly like to be allowed by Congress to step in and allow their deductions, but theyre not counting on it.

[More: Even with SEC guidance, advisers must decide when to disclose PPP loans]

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