In late November, the IRS issued guidance which stated that businesses can’t deduct expenses (payroll, rent, utilities, etc.) funded with money from a forgiven Paycheck Protection Program (PPP) loan. This is a complete departure from the original CARES Act legislation which specifically stated that the forgiveness of a PPP loan would not be treated as taxable income. Unless Congress steps in to solve this before year-end or in early 2021, businesses who received PPP loans will have additional net income on their 2020 filings.



Additionally, if a business reasonably believes they met the criteria for forgiveness at the end of 2020, but ends up being denied forgiveness in a later year or the taxpayer decides not to apply for forgiveness then the IRS gives the taxpayer three options. Option (1) claim the deduction on their 2020 tax return if it is filed timely; option (2) claim the deductions in an amended tax return for 2020 or option (3) claim the deductions in the tax return for the later year in which it becomes clear that the loan will not be forgiven.

As things stand today, businesses should plan to file their 2020 return without claiming deduction for expenses paid for with the PPP loan. If there is a more favorable decision made by Congress at a later date then an amended return and request for refund can be submitted.

We will be reaching out to businesses that we know have obtained PPP Loans to talk through strategies for year-end planning, but feel free to reach out in the meantime with questions.