IRS denies PPP tax deductions even though loans may be waived in the future

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The Paycheck Protection Program was at the heart of the CARES Act, making corporate loans of up to $ 10 million. If you stick to it, you won’t even have to pay back your loan. In addition, there is not even debt relief when your loan is waived, which is usually a normal tax result from a waived loan. So far so good, but can companies claim taxes? Prints for business expenses? It sounds like a stupid question, but when it comes to the Paycheck Protection Program (PPP) it has been a tricky question from the start. Rent and wages are deductible expenses, so you can safely write off the wages, rents and other expenses you pay with PPP money, right? Not so fast, said the IRS. In the 2020-32 notice, the IRS also denied tax deductions for expenses that normally fully deductible. The IRS says it would be a double dip to allow a withdrawal. Congress moved quickly to repeal the IRS in the Small Business Expense Protection Act, pp.3612-116th Congress (2019-2020). This bill languished and has still not been passed, although Congress could still reverse the IRS’s refusal to allow tax deductions.

But what if you pay and write off the wages and rent, and later Apply for credit waiver? The IRS has not been kind to PPP loans, and here is another example. Here’s the latest from the IRS. To stop people from claiming deductions and then later To get forgiveness, the IRS said no again. The IRS released the 2020-27 Revenue Ruling to address situations where a loan has not yet been issued but may be in the future. In the decision, the IRS described two situations. In the first case, a borrower pays wage and mortgage interest, which are valid PPP expenses. The borrower submitted an application for waiver in November 2020 and met all the requirements under the CARES Act for waiver, but has not yet answered whether it will be waived.

In the second case, the borrower paid the same type of expenses with their PPP loan but expects to apply for waiver in 2021. In either case, the IRS says the company cannot deduct these business expenses. The companies both have a “reasonable expectation” that the loans will be waived. The IRS also released Rev. Proc. 2020-51, which provides a safe haven for PPP borrowers whose loan waiver has been partially or fully refused and who wish to claim the deductions for otherwise eligible payments on a return, modified return, or government adjustment request.

The debate about whether or not to allow deductions stems from some traditional tax principles. The IRS says that if the income is tax-free, then typically you won’t Even claim related deductions. If the rules are consistently applied, the IRS says, you should not be able to get the free money, fail to pay off your debt, and still deduct the wages and rent payments made with the free money. Still, there are good arguments in favor of deductions, and Congress may have to step in.

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