Deductibility of Expenses and the Paycheck Protection Program (PPP)

Deductibility of Expenses and the Paycheck Protection Program (PPP)

After intense negotiations, it looks like Congress is going to give businesses the ability to deduct expenses that were paid with the paycheck protection program loan. After nearly a year of handwringing on the part of many business owners and many more accountants and attorneys, it looks like we may all be able to breathe a collective sigh of relief.

For those that may have missed a bit of the background, initially Congress stated that it intended for businesses that paid for expenses with PPP loan money to deduct those expenses for tax purposes. However, Congress did not codify this intended benefit. As a result, the Treasury took the intuitive position that if a business receives a PPP loan, receives—or reasonably expects to receive—forgiveness for that loan, then it cannot also claim a deduction for the expenses related to this loan. Rev. Rul. 2020-27. The IRS’s position is intended to deny a double benefit for businesses and prevent what was considered an unintended windfall.

Today, Congress will likely pass the second round of stimulus and will show Treasury that it intended this windfall by including a provision that makes the double benefit law. This is good news for many businesses out there that received the PPP loans and were unsure about how this loan would impact their 2020 income tax filings.

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