As we approach year end for many of you, tax planning still has some uncertainties. Many business clients received financial assistance through the Paycheck Protection Program (PPP). The PPP is essentially a government loan that can be forgiven if the proceeds are used to pay certain qualifying expenses, mainly compensation to employees. There has been a lot of media attention to this program, in particular, loan forgiveness and the associated qualifying expenses.
A lot of discussion has centered around the intent of Congress, which was that the qualifying expenses funded by the PPP loan should be deductible. However, the PPP statute was written in a fashion that casts doubt regarding the deductibility of the qualifying expenses. The Internal Revenue Service (IRS) has stated that any expenses funded by PPP loan that is forgiven is not a deductible expense. We believe that the IRS’s position is a result of a drafting oversight by Congress.
Questions have also arisen as to whether timing of the PPP application impacts the deductibility of qualifying expenses; the IRS’s position is currently “no.” https://home.treasury.gov/news/press-releases/sm1187
Congress stated that the intent behind the PPP program was that qualifying expenses would be deductible. Currently, there is a bipartisan proposal to provide additional financial relief and correct the prior oversight in drafting. We are monitoring this situation and will continue to update you when there is new law.
As recipients have ten months to file the application for forgiveness of their PPP loan, our recommendation is to wait until 2021 for this filing to hopefully receive additional guidance.
Please let us know of questions in the meantime.