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The Internal Revenue Service (IRS), along with the U.S. Treasury Department, released new guidance on Nov. 18, 2020, confirming fears and clarifying the expenses funded by an unforgiven Paycheck Protection Program (PPP) loan will not be able to be deducted this year.
The guidance indicates if a business reasonably believes a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.
This doubled-down on an earlier notice where the IRS claimed taking a deduction on expenses funded by a forgiven PPP loan would be providing a double tax benefit. When the PPP was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it appeared Congressional intent was for loans forgiven to be tax free, inclusive of deducting forgiven expenses. This does not coordinate with the Treasury and IRS interpretation.
In the instance a PPP loan is expected to be forgiven, and is not, the IRS did provide a safe harbor allowing those businesses to be able deduct those expenses.
Although we are still hopeful Congress will correct this, time is running out. Businesses should file for forgiveness as soon as possible to provide an opportunity to still deduct expenses in 2020 should the loan not be forgiven.
Contact a Doeren Mayhew tax advisor to determine how this may impact your business and develop strategies to minimize your tax liabilities.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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