January 21, 2022

Volume XII, Number 21

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IRS Confirms PPP-Funded Expenses Are Non-Deductible

Literally tens of thousands of businesses received Paycheck Protection Program (PPP) loans under the CARES Act. The legislation was passed very quickly to avert a potential collapse of the U.S. economy at the beginning of the COVID-19 pandemic.

As often happens with legislation passed quickly, questions immediately arose about the tax consequences for PPP loan recipients.

The IRS has released guidance in Rev. Rul. 2020-27 which states that expenses which would otherwise be deductible that were paid with PPP funds cannot be deducted for federal tax purposes. The deductibility limitation applies to the extent of the loan forgiveness. 

Essentially, if there is a reasonable expectation of the loan being forgiven in the whole or in part, the associated expenses are not deductible. This rule applies whether the forgiveness application is filed in 2020 or 2021 or when the actual forgiveness occurs.

Taxpayers who are unsuccessful in securing loan forgiveness in whole or in part may amend their 2020 tax return or claim the deduction in 2021.

Stay tuned if Congress may approve legislation modifying the treatment as outlined by the IRS.

© 2022 Varnum LLPNational Law Review, Volume X, Number 352
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About this Author

Angelique Neal Tax Attorney
Counsel

Angelique is a member of Varnum’s Tax Team. Her practice includes all aspects of federal and state tax controversy and tax planning, including: tax audits, appeals, and litigation; tax collections – liens, levies, offers in compromise, and other collection alternatives; employment tax issues; and civil and criminal tax litigation. In addition, she handles tax and reporting compliance issues with offshore financial accounts and other assets. She represents individuals and business clients from small businesses to multimillion dollar corporations, including clients with overseas interests....

248-567-7831
Eric M. Nemeth, Tax Planning Attorney, Varnum, Financial Controversy Lawyer
Partner

Eric is a partner and leads the tax team. He concentrates on tax and financial controversy (IRS and various States) from examinations appellate conferences, criminal investigations, witness representation and civil and criminal tax litigation. He works with government regulatory and general tax matters. He has served as Senior Trial Attorney for the District Counsel of the Internal Revenue Service and as Special Assistant U.S. Attorney for the Department of Justice. He is a frequent speaker on tax enforcement and has served as an expert witness and binding arbitrator....

248-567-7402
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