Your PPP Loan + Business Deductions = IRS Issues

Did your company receive a Paycheck Protection Program loan? Did you apply for, or receive, loan forgiveness? When you prepare your 2020 tax return, do you plan on claiming a deduction for business expenses funded by the PPP loan?

If you answered “yes” to these questions, CLCA encourages you to hold tight while a recent IRS ruling is clarified.

CLCA’s accountants – Gilbert CPAs – and the American Institute of Certified Public Accountants believe that the IRS’s interpretation denying deductions of expenses forgiven under the PPP program is contrary to Congress’s intent.

In an exclusive guidance document prepared by Gilbert CPA for CLCA, two tax experts note that “the IRS has stated that expenses paid with proceeds of PPP loans cannot be deducted because the loans are forgiven without a recipient having taxable cancellation of debt income. Therefore, the proceeds are, in effect, tax-exempt income. Expenses allocable to tax-exempt income are nondeductible because deducting the expenses would result in a double tax benefit.

“The IRS’s position on the non-deductibility of expenses used for PPP loan forgiveness has been criticized by accounting organizations and some Congress members …”

“The IRS’s position on the non-deductibility of expenses used for PPP loan forgiveness has been criticized by accounting organizations and some Congress members who have argued that the denial of the deduction for these expenses is inconsistent with legislative intent. Congress may pass new legislation directing the IRS to allow deductions for expenses paid with PPP loan proceeds,” Gilbert CPAs’ tax experts say.

CLCA continues to work with our accountant and other green industry and small business groups and professional associations to clarify the situation.