IRS Says ‘No’ to PPP Loan Deductions

Nov 20, 2020 | COVID-19 Legal Update

The IRS released guidance this week which definitively stated that expenses paid with Paycheck Protection Program (PPP) loan proceeds are NOT deductible.  With the end of the year coming quickly, many of our clients have either filed or are preparing to file PPP loan forgiveness applications.  This IRS ruling makes clear that whether or not you have filed for forgiveness prior to December 31, if you reasonably believe that a PPP loan will be forgiven in the future, the expenses related to the loan are not deductible – regardless of when the forgiveness actually occurs. So, if you file the forgiveness application in 2020 but do not get forgiveness confirmed until 2021, then you take the money into income in 2021, but the 2020 expenses you paid with it are not deductible in 2020.   So, the income and expenses do not sync up in the same tax year.  However, if the PPP loan was expected to be forgiven, and then later it is not, the business will be able to deduct those expenses in the year in which you learn your PPP loan is not forgiven.   2020 just keeps on giving, doesn’t it?   The COVID-19 pandemic and response is an evolving situation. All levels of government are engaged in the process of preparing new legislation, regulations and orders both to stem the spread of the virus and to provide relief to employers and employees.   We will continue to monitor the situation and provide updates as applicable, especially as such updates affect healthcare providers and their practices.   For more updates on this topic and other legal updates related to the COVID-19 pandemic, please visit our COVID-19 Legal Resource Page by clicking here.