The U.S. Treasury Department and Internal Revenue Service (IRS) released guidance recently clarifying the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received.
Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor a tax handicap 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.
In the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses.
View the Rev. Rule 2020-27, which explains this guidance.
For more information, visit our COVID-19 tax and business matter page.