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New Guidance Issued on Deductibility of PPP Loan Expenses by Andrew Leonard, CPA

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Posted on December 01, 2020 by Andrew Leonard

The IRS and Treasury Department recently released guidance clarifying how Paycheck Protection Program (PPP) participants must treat loan expenses when they have not received loan forgiveness by the end of the 2020 tax year.

Under Revenue Ruling 2020-27 and Revenue Procedure 2020-51, businesses that “reasonably believe” the SBA will forgive their PPP loans in the future cannot deduct expenses related to those loans regardless of whether they have already applied for loan forgiveness. If those loans are not forgiven in the future, businesses may deduct those expenses at that time.

According to the IRS, the recent guidance supports its stance that because businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible, resulting in neither a tax benefit nor tax harm. However, Congressional leaders, CPAs and small business owners disagree, arguing that such guidance is contrary to the original intent of the CARES Act to provide immediate economic relief to taxpayers in the wake of the COVID-19 health crisis.

PPP loan recipients have the option to either abide by the new guidance when filing their 2020 tax returns in early 2021, or they may take advantage of tax-filing extensions with the hope that legislation or other forms of government stimulus will allow them to deduct loan expenses.  In either case, businesses should work with their advisors and CPAs to ensure they meet their tax responsibilities without drawing scrutiny from either the IRS or the Justice Department, which has been stepping up its investigations of purported PPP loan fraud.

About the Author: Andrew Leonard, CPA, is a director with Berkowitz Pollack Brant’s International Tax Services practice, where he provides tax structuring, pre-immigration planning and a wide array of international tax and consulting services to international companies, entrepreneurs, families and foreign trusts. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.