IRS and Treasury Say Businesses Can’t Deduct PPP Expenses

If you took out a PPP loan for your business because of the pandemic, you won’t be able to deduct those expenses on your taxes if your loan’s forgiven.

“Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible,” according to a news release from the U.S. Department of Treasury. “This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.”

Some Congressional members and other groups believe that the Treasury Department and IRS aren’t interpreting the CARES Act language about PPP correctly. It’s possible Congress could act to reverse the IRS and Treasury. But it’s unknown at this point if and when that will happen.

If a business has a PPP loan that they expected the government would forgive — but the loan is then not forgiven — the business could then deduct those expenses.

The IRS and the Treasury issued a revenue ruling and a revenue procedure.

In the ruling, the IRS and Treasury provided guidance for PPP loan participants who have applied for and expect loan forgiveness and also paid certain expenses they would typically deduct. There’s also guidance for those who haven’t applied for forgiveness yet but plan to next year.

In the procedure, there’s a safe harbor for PPP loan participants who were denied forgiveness or who decide to pass on loan forgiveness so they can still claim certain deductions.

So, if your business has a PPP loan, how should you handle your taxes and deductions for this year?

You have a couple of options. You could file as you usually do at the end of the year and not deduct expenses, as the IRS and Treasury have instructed. Or you could extend your returns to see if Congress overrides the IRS and Treasury.

If you need help deciding which option is best for your business, please let us know.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.