IRS: Companies Who Got PPP Loans Won't Qualify for Tax Deductions

Tax attorneys weigh in on what this means for small business owners

Kenny Kuhn
May 15, 2020 - 12:13 pm

When the CARES Act and the Paycheck Protection Program were drafted into law by Congress, it was to help small businesses in the U.S. recover from the economic shutdown. Businesses who took the PPP loan could convert it to a forgivable grant if it was spent by the businesses on specifics like employee payroll, rent, etc.

But on April 30, the Internal Revenue Service issued a notice which seems to say that the PPP money is taxable income and cannot be used as a tax deduction.

“Unfortunately in the CARES Act, Congress didn’t bother to put their intent in the actual bill itself, so when that happens it leaves it up to the Treasury Department to interpret it,” said attorney Cary Bryson with the Bryson Law Firm. “And of course their guidance is that you cannot deduct those expenses used in forgiveness which is contrary to what every other business operates. As I understand it that’s the rule today unless Congress changes the guidance.”

“There still are some credits available that if you don’t use the PPP, which you can use,” said Bryson. “There is the Employer Retention Credit, There is the Paid Sick Leave Credit, The Family Leave Credit, so there are a lot of credits that if you are keeping people employed that you are going to be able to use. It may not be as good as the PPP but it is going to be close.”

Bryson says business owners who take the PPP loan under the current tax law and have the loan forgiven will not owe taxes on the money. He says the PPP loan amount is based on pre-COVID-19 employee staffing which many businesses reopening will not need now they are operating at a lower capacity and smaller staff. In some cases like this, Bryson says business owners who took the PPP loan will have too much money to meet their obligations and could be penalized.

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