GSCPA on PPP Pre-Guidance

Recently, The Georgia Society of CPAs (GSCPA) cosigned with the Association of International Certified Professional Accountants (AICPA) and CPA societies in all 54 states and territories to request that a provision be included in a must-pass bill to allow all Paycheck Protection Program (PPP) loan recipients to be able to deduct the associated business expenses. It is reasonably unprecedented to have GSCPA, AICPA and all 53 other states and jurisdictions signed onto the same letter.

The letter urged “swift action on the issue of tax deductibility from the borrower’s federal income taxes of qualified business expenses forgiven under loans made through the Paycheck Protection Program (PPP).” Without action on this issue small businesses will see surprise federal tax increases of up to 37 percent when they file their taxes for 2020.

On April 30, 2020, the Internal Revenue Service (IRS) released Notice 2020-32, which contradicted congressional intent by declaring that no tax deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP covered loan. Further, on November 18, 2020, the IRS released Rev. Rul. 2020-27 which indicates that expenses allocable to PPP loan forgiveness are not deductible when there is a “reasonable expectation of forgiveness.” For companies who haven’t submitted their forgiveness application by 12/31/20, under this ruling, they will likely have to make the associated expenses non-deductible on their 2020 tax returns.

“I hear daily from CPAs with clients who are trying to advise and plan with clients for the tax implication on the loan forgiveness, which is why we are hoping that Congress fixes this issue ASAP by clarifying to the IRS that the PPP loan forgiveness expenses are deductible,” said GSCPA Board Chair, Kirk Jarrett.

Leaders in both houses of Congress have indicated lawmakers will vote on a stopgap funding bill, providing more time as negotiators focus on a coronavirus aid package.

“It is GSCPA’s understanding that Congress intends to pass a coronavirus aid package before they break for the holidays. GSCPA has asked for and explained to our Georgia Congressional delegation that it is imperative that language is added to any aid package that allows for the tax deductibility of qualified business expensed for forgiven PPP loans,” said GSCPA CEO, Boyd Search.

An email including the letter signed by GSCPA, AICPA and state societies in all 54 states and territories was emailed to the staff of Georgia’s Congressional delegation with the ask to include language that allows associated business expenses to be deducted.

Background of Paycheck Protection Program

  • In section 1106(i) of the CARES Act, congress clearly indicated that the PPP forgiveness is tax free.
  • IRS came out with Notice 2020-32 on April 30, 2020 indicating that costs qualifying for PPP loan forgiveness are disallowed under case law and rulings denying deductions where taxpayer receives reimbursement (per section 265(a)(1) of the internal revenue code).
  • IRS issues Revenue Ruling 2020-27 on November 18, 2020 taking it even further and indicating that expenses allocable to PPP loan forgiveness are not deductible when there is a “reasonable expectation of forgiveness.”