COVID-19 And CARES Act: PPP Loan Forgiveness Expenses Are Not Tax Deductible. Wait! Really?

The IRS recently announced that business expenses paid to qualify for loan forgiveness under the Paycheck Protection Program of the CARES Act (PPP) are not deductible. For details about the PPP please click here. This agency decision “prevents a double tax benefit” since loans forgiven under the program are not included in the borrower’s taxable income. By taking this position, the IRS eliminated some extra benefits borrowers would have received under a program that was intended to help small business maintain liquidity during the COVID-19 pandemic.

There are valid arguments for both sides. But because the CARES Act was silent on the deductibility of the business expenses the IRS expectedly took the more conservative position. Now it is up to the lawmakers to correct this issue if they disagree with the IRS’ position.

There is already some indication that the lawmakers will override the IRS’ position. The House Ways and Means Committee Chair, Richard Neal (D-Mass.) indicated through his spokesperson that there are plans to correct this deductibility issue in the next legislation. In addition, the Senate Finance Committee Chairman, Chuck Grassley (R-Iowa), expressed his disappointment with the IRS’ position. Any change in the law will likely be included in the next stimulus package.

So, the issue is not entirely settled. However, until lawmakers actually succeed in passing legislation that says otherwise, the IRS’ position will govern so that business expenses paid to qualify for loan forgiveness under the PPP will not be deductible.

For additional information regarding the tax provisions of the Paycheck Protection Program or the CARES Act, contact Pauline W. Markey at 215.665.3222 and pauline.markey@obermayer.com, or Warren W. Ayres at 215.665.3124 and wwa@obermayer.com


The information contained in this publication should not be construed as legal or medical advice, is not a substitute for legal counsel or medical consultation, and should not be relied on as such.

About the Authors

Pauline Markey

Pauline W. Markey

Partner

Pauline focuses her practice on United States federal income tax. Her practice includes tax planning for mid-size LLC and partnerships, public financing, mergers and acquisitions, executive compensation, and tax controversy. Some of...

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Warren W. Ayres

Partner

Warren focuses his practice on advising individuals, businesses, and other organizations regarding federal, state, and local taxation, and he leads Obermayer’s Tax Practice Group. Warren is also a partner and member of...

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