IRS Issues Guidance Tax Treatment of PPP Covered Expenses
New Potential Legislation Could Be Imminent By Weeks End

As we near the end of 2020, arguably one of the most tumultuous years in our lifetimes there has been some recent clarity regarding the Paycheck Protection Program (PPP) we want to alert you of.

Last month the Internal Revenue and the Treasury Department issued guidance regarding the deductibility of expenses that are considered for forgiveness within an entity’s covered period. While we had previously known that a business would not be taxed on the proceeds of a forgiven PPP loan the deductibility of those expenses considered for forgiveness was still in question for much of this year.

Unfortunately, the guidance clearly stated that these expenses are nondeductible
even if the entity has not applied or received PPP forgiveness within
the tax year. Here is a quote from a Treasury news release:

If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.

Secondly, we are also closely watching proposed legislation currently before congress. While not finalized as of this writing, there appears to be a greater willingness and motivation to get this passed than we have seen earlier in this year. The “Emergency Coronavirus Relief Act of 2020” in current form has many impactful provisions including sections funding further rounds of targeted PPP funding and the full deductibility of covered expenses. This legislation could effectively “correct” the IRS and Treasury Department rulings regarding
deductibility stated earlier if it ultimately remains in the final version.

As your trusted business advisors, we at Polk and Associates remain committed to assist you during this extraordinary time. Please reach out to us with questions you may have as we stand with you as we weather this extraordinary crisis.

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.