White House releases COVID-19 update, clarifies PPP loan forgiveness procedures
WASHINGTON, D.C. – Yesterday, the White House released an update on the administration’s efforts related to COVID-19, including an update on the Paycheck Protection Program (PPP) and loan forgiveness.
The Internal Revenue Service (IRS) published clarifying documents for the treatment of taxing expenses in the case of a PPP loan that has not been forgiven by the end of the year.
The guidance is as follows:
- Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results are 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.
The IRS and other government agencies recommend that businesses holding PPP loans apply for forgiveness as soon as possible. However, with these current guidelines, the IRS upholds their stance that business expenses paid for with PPP funds are not eligible as tax write-offs. If a loan is denied for forgiveness, then these expenses would become eligible for deductions.
Read the revenue ruling here.
Read the revenue procedure here.
Madi Hawkins serves as a Legislative Analyst in the Automotive Service Association’s Washington, D.C. office. She is a graduate of Vanderbilt University with a major in Public Policy Studies. Madi is originally from Austin, Texas, where she was born and raised, but now resides in Washington, D.C.