As we approach the end of the year, much remains uncertain regarding the Tax Consequences of receiving PPP Funding and the subsequent debt forgiveness.
The IRS has issued guidance on the deductibility of expenses paid with Paycheck Protection Program (PPP) loan proceeds. The two documents confirm the IRS’s position that expenses paid with PPP proceeds will not be deductible by businesses when the loan is likely to be forgiven.
In response, the Senate Finance Committee issued a statement advising they are promoting legislation by the end of the year to clarify that forgiven PPP loan expenses will be fully deductible. Several national organizations are lobbying Congress to help pass this or similar legislation by year end. Short of such legislation the IRS guidance will prevail.
Two additional points of clarification remain that are important to consider:
- Proc 2020-51 clarifies that businesses that do not file for forgiveness or are denied forgiveness will be permitted to deduct PPP funded expenses through a safe harbor procedure. (https://www.irs.gov/pub/irs-drop/rp-20-51.pdf)
- 2020-21 clarifies that disallowed expense deductions due to PPP loans occur in the Tax year 2020, regardless of whether forgiveness is granted in 2020 or 2021. (https://www.irs.gov/irb/2020-21_IRB; https://www.congress.gov/116/plaws/publ136/PLAW-116publ136.pdf)
This remains a fluid situation with little time remaining for action by both the Senate and Congress. The materials available herein are for informational purposes only and not for the purpose of providing legal advice. We highly recommend that you remain in close contact with your Tax Advisor regarding this situation. Also, should you feel so inclined, reach out to your Representative voicing your stance on the IRS ruling.