COVID-19 Resources

PPP Update: Borrowers are Not Allowed to Deduct PPP Expenses if Forgiveness is Expected

Written by Van Trefethen on November 20, 2020

On November 18, the Treasury Department, along with the IRS, issued guidance providing PPP borrowers with clarity as 2020 comes to a close.

In the form of a revenue ruling, the IRS stated that PPP borrowers are not allowed to deduct their PPP expenses “in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.” (emphasis added)

As you may recall earlier this year, the IRS issued Notice 2020-32, stating that expenses paid for with forgiven PPP loans would not be deductible. This announcement caught many taxpayers (and professionals) by surprise because it contradicted the understanding of the Congressional intent behind the PPP loans.

Senator Chuck Grassley, Chairman of the Senate Finance Committee, has been reported stating that this was not the intent in the CARES Act. Attention will again turn to Capitol Hill to see if Congress will pass additional legislation clarifying that these expenses were intended to be deductible.

Warren Averett will continue to monitor this situation and keep you updated concerning any changes. If you have any questions about how this will affect you, please contact your Warren Averett advisor or ask a member of our team to reach out to you.

Back to Resources