IRS Issues PPP Loan Expense Guidance

The Paycheck Protection Program (PPP) was designed to aid small businesses with loans to continue payroll and cover some overhead costs during the COVID-19 crisis. If a small business uses the loan monies for eligible expenses, all or part of the loan can be forgiven, which is quite an alluring facet.   

On April 30, 2020, the Internal Revenue Service (IRS) issued Notice 2020-32, which serves as guidance regarding ‘ the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer received a loan pursuant to the PPP loan.’ In other words, when payment of business expenses results in the forgiveness of a PPP loan, like rent or payroll costs, those expenses are not deductible for tax purposes. 

The American Institute of Certified Public Accountants (AICPA) aims to seek legislative clarification as it feels the intent of the CARES Act was to allow businesses to deduct all their normal and necessary expenses including those used in determining covered costs for PPP loans. Despite guidance from the IRS through Notice 2020-32, those receiving PPP loans continue to seek additional direction. In fact, the AICPA recently published several suggestions for the Small Business Administration (SBA) to consider. Click here for more details.

Sources: IRS Notice 2020-32 & Journal of Accountancy