No Surprises in IRS Guidance on PPP Expense Deductibility

In a blow to the restaurant industry, the IRS issued guidance shortly before Thanksgiving that effectively negates the opportunity to claim a 2020 tax deduction for expenses funded with forgivable...

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In a blow to the restaurant industry, the IRS issued guidance shortly before Thanksgiving that effectively negates the opportunity to claim a 2020 tax deduction for expenses funded with forgivable PPP loans. While it was no surprise that the IRS maintained its position that PPP-funded expenses are not tax-deductible, many borrowers that weren’t expecting to receive forgiveness until 2021 had counted on being able to deduct the expenses in 2020 and then reverse those deductions when they received forgiveness in 2021. The IRS’ guidance quashed this by stating that so long as the borrower has a reasonable expectation of receiving forgiveness in 2021, the expenses are not deductible in 2020.  

For readers that may have missed the details of the IRS’ PPP guidance in the hustle and bustle of the Thanksgiving holiday, we invite you to read BDO’s deep dive into the timing of eligible expense deductions. Congress continues to state that the IRS’ position is contrary to the original intent of the PPP loans, which was to provide tax-free funding to businesses in need. Tax-free funding includes not taxing the loans and allowing tax deductions for forgiven expenses. We’re keeping our ears to the ground and will keep you posted as we learn more. 

Author: Adam Berebitsky, Lisa Haffer, Jeff Tubaugh
December 8, 2020

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