We have been waiting for tax guidance concerning the treatment of expenses used to seek forgiveness of Paycheck Protection Program Loans (PPP Loans) and now we have it.
In this new guidance, the Internal Revenue Service (IRS) states that the taxpayer may not deduct expenses funded by the PPP Loan that were paid or incurred in the taxable year if at the end of the taxable year the taxpayer reasonably expects to receive forgiveness of their PPP Loan. This applies whether the taxpayer submits an application for loan forgiveness prior to the end of the taxable year or submits an application for loan forgiveness in a subsequent taxable year. Only the amount of the loan that is forgiven results in nondeductible expenses. If a borrower only achieves partial forgiveness, then only the expenses used towards the forgiven portion of the loan result in nondeductible expenses.
This guidance does leave some questions still to be answered but does address the major timing issue that taxpayers need in order to move forward with any year-end tax planning. A bipartisan group of Senators and Representatives is insistent that this approach does not reflect Congressional intent. That intent, however, needs to be stated in Congressional legislation in order to give taxpayers a clear path forward.
DGC’s Business Tax Group and PPP Loan Forgiveness Team collaborate on client engagements to maximize PPP Loan forgiveness and PPP-related tax deductibility. Our firm has a proven process that utilizes our sophisticated PPP Loan forgiveness model and incorporates our data analytics experience and accounting expertise.
If you have questions, please contact a member of your DGC client service team or Stephen Minson, CPA, MST at 781-937-5120 / firstname.lastname@example.org, Kimberley Train, CPA, ABV at 781-937-5112 / email@example.com or George Shaw, CPA at 781-937-5125 / firstname.lastname@example.org. You can also visit DGC's coronavirus web page at dgccpa.com/coronavirus which is frequently updated with new resources to help you deal with the financial impact of the coronavirus on you and your business.