Broker Check

IRS releases guidelines regarding PPP Loan Forgiveness

| May 01, 2020

We have received many questions from clients in recent weeks with regards to the various programs resulting from the passing of the CARES Act that impact individuals and small businesses. The Paycheck Protection Program has helped many small businesses, but the IRS has, until recently, been quiet about the treatment of the loans, forgiveness, and corresponding expenses.

"Will the forgiveness of my PPP loan be considered taxable?"
"Will I still receive a tax deduction for my expenses?"
"Will I have to repay the loan?"

Just yesterday the IRS published guidance regarding the handling of these various concerns, and have answered some very important questions. The following information was sourced from Fox Business via Yahoo Finance, and the article does a concise job of explaining the IRS guidelines:

"Employers who have their Paycheck Protection Program loans forgiven will be ineligible for tax deductions on expenses paid for through the loan, the IRS announced on Thursday.

The tax agency released guidance clarifying that otherwise deductible business expenses, like salaries, will not be deductible if they were paid for by a forgiven PPP loan – thereby preventing a “double tax benefit.”

The forgiven loans won’t be taxed, and the ruling is based on the premise that deductions typically aren’t allowed on exempt income.

PPP loans are largely expected to be allocated toward payroll expenses (75 percent), but the remaining 25 percent can be put toward rent, mortgage interest, utilities and interest on other debt obligations.

Recipients are eligible for complete forgiveness if they keep staffing numbers – and salaries – consistent, if loan allocation specifications are met and if the funds are used within an eight week window. Forgiveness is prorated if not all conditions are fully met."

This latest development will likely raise many further questions. Our team is scheduled to meet on Monday to discuss, analyze, and understand the new IRS guidelines. We will send out additional information next week as it becomes available.