No deductions for expenses paid by PPP debt that is forgiven.
As expected, the IRS has issued guidance stating taxpayers may not deduct expenses that were paid by PPP loans, if the payment of the expenses results in loan forgiveness under the program. Loan forgiveness is available under the program for the following expenses paid and incurred during the eight weeks after the borrower receives their funds:
- Payroll costs (including group health insurance, and retirement plan benefits);
- Mortgage interest;
- Rent; and
Under the Internal Revenue Code, taxpayers are denied claiming deductions paid with exempt income. Because PPP loan forgiveness is excludable from taxable income under the CARES Act, taxpayers may not claim deductions for these expenses. It would have been too good to be true otherwise.
The full text of the IRS Notice is available at www.irs.gov/pub/irs-drop/n-20-32.pdf.
We will continue to update you as more information becomes available.