New IRS Guidance Clarifies Expenses Deductibility for PPP Loans

New IRS Guidance Clarifies Expenses Deductibility for PPP Loans

November 23, 2020

In time for taxpayers’ 4th quarter estimates and year-end planning, the U.S. Treasury Department and Internal Revenue Service (IRS) have released new guidance to clear up the tax treatment of expenses with Paycheck Protection Program (PPP) loans. Specifically, in situations where a PPP loan is not forgiven by the end of the year in which the loan was received.

According to the new guidance, if a business expects its loan will be forgiven, the expenses related to the loan are not deductible—no matter whether the business has filed for forgiveness. Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm, since the taxpayer has not paid anything out of pocket.

In instances where a PPP loan was expected to be forgiven, but it is not, businesses will be able to deduct those expenses.

The IRS is encouraging PPP borrowers to file for loan forgiveness as quickly as possible. The revenue ruling is available, here, and the revenue procedure, here.

How REDW Can Help

REDW is here to help you navigate the PPP. Please contact REDW Principals James Ortiz or Christina Roderick to discuss any concerns about PPP-related issues.

REDW is committed to keeping you informed at all times, and especially through the impacts of the COVID-19 pandemic. Stay connected with us on LinkedIn and @REDWLLC on Twitter. Access some of our other updates on our COVID-19 Resource Hub.

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