Client Alerts Deduction for Expenses Related to Forgiven PPP Loans Non-Deductible

Publication
05.05.20 | By: Frank L. Washelesky

The details behind the Paycheck Protection Program (PPP) continue to evolve and many aspects of the program remain uncertain. The CARES Act was clear that the amount of loan forgiveness will not be included in gross income for federal income tax purposes.

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The details behind the Paycheck Protection Program (PPP) continue to evolve and many aspects of the program remain uncertain. The CARES Act was clear that the amount of loan forgiveness will not be included in gross income for federal income tax purposes. However, the Internal Revenue Service issued Notice 2020-32 on April 30, 2020, which seems to override Congressional intent by disallowing the deduction for any expenses which result in forgiveness of a PPP loan where such loan forgiveness is excluded from gross income. In other words, when a business excludes the forgiven loan proceeds from gross income, it cannot receive the tax benefit of deducting the expenses that were paid with the forgiven loan proceeds.

Congress carefully thought to exclude any forgiveness from gross income for federal income tax purposes, likely to maximize the value of the relief to struggling businesses. The IRS, on the other hand, looked to the Internal Revenue Code and case law to determine that recipients should not receive a double benefit. Some Senators and Congressman are already pushing back. It seems that a clarifying law will need to be passed to overrule the IRS interpretation.

Related Read: Paycheck Protection Program: Additional Money, Loan Forgiveness and Other Guidance

The Treasury and the SBA continue to update, change and clarify the guidance related to the PPP Loan Program. Your ORBA advisor is available to assist you through this complex process. If you have questions regarding this Client Alert or if we can be of assistance in helping you through the application or forgiveness process, please contact Frank Washelesky at fwashelesky@orba.com or your ORBA advisor.

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