Mnuchin backs IRS on coronavirus PPP loan tax break denial, ‘basically tax 101’
Mnuchin: PPP is a great success story
Treasury Secretary Steven Mnuchin, in a wide-ranging interview, discusses Paycheck Protection Program progress, small business and rebuilding the economy amid coronavirus.
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U.S. Treasury Secretary Steven Mnuchin has backed a recent, controversial IRS ruling that expenses paid for with the forgivable Paycheck Protection Program loans are not tax-deductible.
Mnuchin told FOX Business’ Maria Bartiromo this week that he has reviewed the issue personally and that the guidance is correct, saying it’s “basically tax 101.”
“The money coming in the PPP is not taxable,” Mnuchin said. “So if the money that’s coming is not taxable, you can’t double-dip, you can’t say you’re going to get deductions for workers that you didn’t pay for.”
If the PPP grants were taxable, the deductions would be viable, Mnuchin added.
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The IRS issued guidance last week preventing business owners who have their PPP loans forgiven from claiming tax breaks on otherwise deductible expenses if they were paid for using the government aid.
The loans are tax-exempt, so the guidance was based on existing law, which generally aims to prevent people from receiving a “double tax benefit.”
The decision has received some pushback from lawmakers, who have indicated that it is not what Congress intended when crafting the legislation.
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Sen. Chuck Grassley, a Republican from Iowa who is the Senate Finance Committee chairman, disagreed with the IRS’ decision, saying the issue was discussed when PPP was being developed.
“The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible,” Grassley said in a statement. "This notice is contrary to that intent."
Experts also argue that it makes the loan less valuable to the recipient.
“If the [expenses] are not deductible, then in effect they’re paying tax on this loan, which makes it worth less,” Ed Slott, founder of IRAhelp.com, told FOX Business. “Losing a deduction is the same as being taxed on something.”
Congress has the power to override the IRS’ guidance.
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However, many experts have noted that frequent changes to the program’s terms have become confusing, and basing decisions on guidance as it stands now may not be the best course of action if that guidance changes down the road.
The program, designed to incentivize companies to retain their staff, has been the cause of frustration for some. Millions of business owners are still waiting for banks to process their loans after an initial round of $350 billion worth of funding ran out last month. Lawmakers and financial experts believe the second $310 billion will also run out before all eligible businesses receive a loan.
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