New IRS Guidance on Tax Treatment of PPP Loan Expenses

The U.S. Treasury Department and IRS released guidance clarifying the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. The main points are summarized below.

•  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.

•  If a business reasonably believes that 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. Therefore, we encourage businesses to file for forgiveness as soon as possible.

•  In the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses.