PPP Loan Forgiveness – general guidance from the Department of Treasury states that if a business reasonably believes a PPP loan will be forgiven, expenses related to the loan are not deductible, regardless of whether the business has yet filed for forgiveness. However, in the case where a PPP loan is expected to be forgiven in the future, but ends up not being forgiven, the applicable business expenses can be deducted.
This tax reporting treatment makes sense, as per a Department of Treasury release on 11/18/20, “Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm, since the taxpayer has not paid anything out of pocket.”
This Department of Treasury guidance not only reiterates its previous guidance it also in support of the IRS’s position taken in Notice 2020-32 , against so-called “double-dipping," it further clarifies that regardless of when loan forgiveness is requested or granted, if forgiveness is reasonably expected, any covered expenses paid for with PPP loan proceeds are not income tax deductible.
Additionally, as noted above, Treasury and the IRS on November 18 released Rev. Proc. 2020-51, which provides a safe harbor for certain PPP loan participants, whose loan forgiveness has been partially or fully denied, or who decide to forego requesting loan forgiveness, to claim a deduction for certain otherwise deductible eligible payments.
Please contact us if you have questions about PPP loan forgiveness in general, or if we can assist you in applying for loan forgiveness with the SBA through your business lender. Sincerely, Mike and Staff