Why Those PPP Loan Expenses May Be Nondeductible
Small businesses that benefit from the Paycheck Protection Program could end up having to pay a share of their loan to Uncle Sam in taxes. On April 30, the IRS issued Notice 2020-32, which states that expenses paid with the forgivable PPP loan proceeds – which would normally be deductible for tax purposes – are considered to be nondeductible. By reasoning that forgivable PPP loans give rise to tax-exempt income, and expenses from tax-exempt income are nondeductible, the IRS concluded that considering PPP expenses as nondeductible will prevent a “double tax benefit.”
In an insightful article, CGS3 partner Phil Jelsma explains the potential consequences of this Notice for small businesses – and why the IRS’s guidance could still be reversed if Congress decides to act.