PPP Loan – IRS Releases Rulings on Deductability of Expenses

When the CARES Act that created the PPP (Paycheck Protection Program) was written, Congress included a provision that specified that PPP proceeds that were ultimately forgiven under the program were not taxable. The IRS has issued a series of Revenue Rulings (starting with 2020-32) that state that expenses paid with tax-free income are non-deductible.

Many people believe that this does not represent the intent of the legislation because–in effect–it adds the amount of the loan to the forgiven borrower’s bottom line. By denying the deductability of the expenses paid with the loan, the IRS accomplishes the same tax effect as including the proceeds of the loan in income.

Now the IRS has released ruling 2020-27 stating that even if the loan is not forgiven until 2020, the expenses are not deductable in 2020.

If you have questions about this, you should consult your tax advisor. For safety’s sake, it is important to plan for the extra income in 2020.