I understand tax vs GAAP. I passed the CPA exam.
by EricCartman (2024-02-25 22:36:30)

In reply to: Depends. Doesn’t really matter. Just a tax vs book differenc  posted by gregmorrissey

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However, that difference is probably what’s at play here.

At the end of the day, PPP was designed to be forgiven. The program was bipartisan and probably flawed due to us pushing it out quickly during a pandemic.

In contrast, student loans were originated under the assumption that they would be paid back. Biden tried to push for forgiveness and lost in court. Biden is forgiving loans anyways, like a true modern day Andrew Jackson.

You continue to bring up favorable treatment under the tax code as evidence of hypocrisy. That’s wrong, since the tax code changes are voted on by congress legally. And the code has been used to influence behavior for decades. So people respond to changes in the code, because that’s entire point of the code: to nudge people to save (401ks), or save for college (529), or buy a home (mortgage interest deduction), or have kids (child tax credit), or develop job skills (EITC), and on and on and on.

If your argument is that the code plays favorites, then the alternative is a flat-tax with zero deductions, credits, or exemptions. You game for that? I am.


There’s nothing at play. It’s just basic math.
by gregmorrissey  (2024-02-26 00:29:49)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

I’m not a Democrat or Republican, and I don’t care what decisions Washington makes. Some will work in my favor, some won’t. Life moves on. We all make the best decisions with the facts we have when making the decisions.

Fact: PPP Loan forgiveness was tax exempt income at the Federal level and in the majority of states
Fact: PPP recipients were allowed to “double dip” by claiming an expense deduction for expenses paid with PPP proceeds.
Fact: This double dip resulted in a direct owner benefit of the PPP loan amount times the recipient’s tax rate.

My problem is not the hypocrisy of the code. It’s the hypocrisy of the beneficiaries of the code. I’d just like one PPP recipient to acknowledge that they had two months of payroll and other expenses paid for by the government and the cherry on top was they were able to still deduct those expenses from income and it was fucking great. I’d like one person who was able to shield capital gains in a 529 plan to admit it was an awesome benefit that is equivalent to loan forgiveness. What is the difference between $12k not paid to the government in capital gains tax and $12k not paid to the government in loan principal? Hint: nothing.

Instead we get responses about shutdowns and breadlines and misstatements about the PPP being taxable income and terms like bailout and deadbeat. There is no doubt that many businesses suffered from the pandemic and from government policies. There is also no doubt that many businesses didn’t miss one beat in 2020 and received two months of free payroll and rent and inexplicable deductions for government-paid expenses. This incites no outrage because it was a bipartisan gift rather than an executive order? Just doesn’t make sense to me.

As I’ve said many times, I encourage everyone to get what they can from the government and to pay as little as possible in tax. I encourage CaTripleDomer to file an amended return if he did in fact include the PPP loan in his taxable income. I support business owners buying 6,000 pound SUVs for “business” use and writing off 100% of the cost in year one. I have no problem with any of this. All I ask is that the recipient acknowledge the benefit that taxes not paid to the government is the same damn thing.

Edit to add: it should be pointed out that over the last 20 years, 529 plans and other savers have benefited tremendously from government bailouts. I guess I have a hard time reconciling one form of government bailout as acceptable and another form as unacceptable.
IRS says no double-dipping (see link)
by EricCartman  (2024-02-26 08:57:00)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

From Notice 2020-32:

This notice provides guidance regarding the deductibility for Federal income tax
purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or
business when the taxpayer receives a loan (covered loan) pursuant to the Paycheck
Protection Program under section 7(a)(36) of the Small Business Act (15 U.S.C.
636(a)(36)). Specifically, this notice clarifies that no deduction is allowed under the
Internal Revenue Code (Code) for an expense that is otherwise deductible if the
payment of the expense results in forgiveness of a covered loan pursuant to section
1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public
Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with
the forgiveness is excluded from gross income for purposes of the Code pursuant to
section 1106(i) of the CARES Act.

https://www.irs.gov/pub/irs-drop/n-20-32.pdf

Unless I am reading this incorrectly, it appears that double-dipping is not allowed.

Outdated. Congress codified in the next COVID bill
by gregmorrissey  (2024-02-26 09:23:17)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

I think it was September of 2020 but may be off on month or even year. IRS updated to comply.

The original IRS ruling makes basic logical sense. But you know Congress (bipartisan) can’t pass up an opportunity to gift business owners money via non-headline-friendly rules.

“Student loan forgiveness” is easy to understand and drive outrage.

“Congress allows business owners to deduct PPP expenses” doesn’t quite drive the same base brain outrage. As soon as I said the word deduction most posters eyes glazed over.

Thanks.
by EricCartman  (2024-02-26 14:32:42)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

It is funny how the IRS went with the correct approach, only to be nuked by Congress.

FWIW, I agree that double-dipping here is wrong. Props to Mnuchin for taking the proper stance.

Last week, the IRS said it would deny those deductions, citing a tax code section that prevents companies from taking deductions tied to tax-exempt income. Allowing the deductions, the agency argued, would offer a double benefit.

Treasury Secretary Steven Mnuchin has defended the decision.

“If the money that’s coming is not taxable, you can’t double dip,” he said on Fox Business on Monday. “This is basically tax 101.”

If the deductions are allowed, businesses could use them to offset other income. If companies are losing money, they could use the deductions to offset past years’ income and get refunds.

For example, consider a company that gets a $100,000 loan and whose owner has a 22% tax rate. If the business pays $100,000 worth of deductible expenses and has the loan forgiven, that would provide a $22,000 tax benefit on top of the loan forgiveness.

Members of Congress say this benefit is exactly what they intended.

“As was expressed to Treasury during the development of the PPP, we did not intend to deny the deductibility of ordinary and necessary business expenses, nor did these small businesses expect to lose deductions for their business expenses when they applied for a PPP loan,” wrote Sen. Chuck Grassley (R., Iowa), Sen. Ron Wyden (D., Ore.) and Rep. Richard Neal (D., Mass.) in a letter to Mr. Mnuchin. All are leaders of the congressional tax-writing committees.

Their letter also argued that the IRS misinterpreted the existing tax code section that denies deductions related to tax-exempt income.

Messrs. Grassley and Wyden are also backing a bill from Sen. John Cornyn (R., Texas) that would expressly allow the deductions, according to Mr. Cornyn’s office. Rep. Lizzie Fletcher (D., Texas) is introducing a similar bill in the House.
Hope you understand my frustration over the last 2 years
by gregmorrissey  (2024-02-26 21:48:25)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

The double dip is just a preposterously insane policy. As I said a few posts ago, it would be equivalent to letting student loan borrowers take an income tax deduction on the forgiven loan amounts. No one would ever even suggest that because of how stupid it would sound.

I do find it curious that so many PPP recipients here that are pretty vocal on student loan forgiveness don't seem to have any rebuttal or acknowledgement to my posts on the double dip or the fact that $12k saved in capital gains tax in a 529 vehicle is not any different than $12k in loan forgiveness. The only difference is the timing of the benefit. Sure, one was approved by Congress and the other was an executive order, but from a financial standpoint, they are equivalent.

Also, I suppose we'll just ignore the massive government bailouts and zero interest rate policies from post-9/11 to 2009 Financial Crisis to Trump tax cuts to 2020 COVID relief that were essentially a transfer of wealth to America's investor class. It just blows my mind that some people here can be so oblivious to their misplaced selective outrage.