Late April 30, the IRS issued additional guidance on the Paycheck Protection Program (PPP). You may recall the proceeds of a PPP loan can be forgiven if spent on qualified expenses – such as payroll costs, mortgage interest, rent and utilities – within a certain period of time. In addition to the benefit of having the loan forgiven, this debt forgiveness is not considered taxable income.
The new guidance has clarified the treatment of the expenses used to qualify the loan for forgiveness. Under this clarifying guidance, the IRS has stated that these expenses are not deductible for tax purposes. While the Coronavirus Aid, Relief, and Economic Security (CARES) Act specifically stated that this debt forgiveness would not be taxable income, the Act was silent on the deductibility of the related expenses. Therefore, the IRS guidance governs the deductibility of these items. While this may not have been the intent of Congress, additional legislation is needed to overrule the IRS.
As always, please reach out to your DunlapSLK team member with any questions you may have.