In previous articles, we’ve emphasized the Internal Revenue Service’s (IRS) position when it comes to borrowers as they cannot “have their PPP cake and eat it too.” In practical terms, that means if you are expecting a loan to be forgiven, you cannot treat the expenses covered by that loan as tax deductible.
This principle applies even if the loan has not yet been forgiven—or even if you have not yet applied for forgiveness—provided you reasonably believe it will be forgiven. This is confirmed by new guidance issued by the IRS and the Treasury Department to clear up the tax treatment of expenses when a PPP loan has not been forgiven by the end of the year. Effectively, it means there is no advantage to delaying filing for forgiveness, so businesses are advised to do so as soon as possible.
The guidance states explicitly that calendar year taxpayers’ expenses covered by PPP loans (and reasonably expected to be forgiven) are non-deductible for year-end 2020, even if the borrower does not apply for or receive confirmation of forgiveness until 2021. Of course, if only part of the loan is forgiven or expected to be forgiven, only that part remains nondeductible.
It is important to note that although this guidance offers clarification, it contradicts the intentions of senior members of Congress, who don’t agree that deducting expenses is considered “double dipping.” As such, businesses should be aware that there is a slight possibility that Congress will enact a retroactive legislation around this, thereby providing relief to millions of businesses.
Our goal is to help as many businesses as we can during these challenging times. Whether you are an existing client or not, we are here to offer clarification about the rules on PPP forgiveness and the corresponding tax implications, as well as expert advice on how to manage every aspect of the process, including completion of the application, even as the guidance continues to evolve.
If you have any questions, please don’t hesitate to contact us.
Stay safe and healthy,
The CJBS team