- IRS notice denies PPP borrowers the ability to deduct expenses paid with Loan money
- Opponents say a “double benefit” was not the objective of the CARES Act
- Proponents argue that these expenses were the intended purpose of the government-provided funds
The American Institute of CPAs (AICPA) joined forces with 170 other businesses and organizations earlier last month encouraging Congress to reverse an IRS notice denying PPP borrowers the ability to deduct expenses paid for with the Loan. According to the letter: “The publication of IRS Notice 2020-32 effectively overturned this policy by denying these borrowers the ability to deduct the same expenses that qualified them for the loan forgiveness.” These expenses include and are not limited to payroll, overhead, and other such costs.
Those siding with the IRS argue that giving businesses the ability to deduct on Loan expenses would result in their receiving a double benefit, seeing as the Loan itself was already a free benefit. The double benefit suggests that businesses would essentially be able to avoid taxable cancellation of debt income on forgiven loan amounts as well as deduct payments made with those loan amounts. To even the field, the IRS agrees to exclude forgiven loan amounts from gross income but not deductions on those amounts.
The AICPA says otherwise. “This is simply untrue,” the letter reads, “Congress intended for the loan forgiveness under the PPP to be tax-free. The IRS Notice reverses that position and eliminates any benefit, let alone a double benefit.”
All groups involved are asking Congress to clarify the technicality to allow businesses to find the best possible workaround for this matter. You can read the whole letter here.
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Associate, Creative Solutions
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