Businesses With Forgiven PPP Loans May Lose Tax Deductions

No double dipping!

Under the SBA PPP loan program, businesses don’t have to repay their loan, it is “forgiven,” if most of the money covers essential expenses such as payroll.

Usually, wages are deductible expenses. Usually, forgiven debt counts as taxable income. But according to the CARES Act, any PPP loan forgiveness does not count as taxable income.

In recently issued guidance the IRS claims that paying expenses which result in the forgiveness of a PPP loan are not considered tax deductible – this is in order to prevent a "double tax benefit." The IRS cited Section 256 of the tax code, which states that deductions can't be taken if they are tied to a certain class of tax-exempt income.

The guidance is not welcome, but it clarifies a point of confusion in the $670 Billion SBA loan program to help businesses struggling as the Coronavirus has brought the economy to a standstill. The CARES Act states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money. The tax code permits companies to write off business expenses such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.

The AICPA has already protested. It believes strongly that the IRS’s interpretation denying deductions of expenses forgiven under the PPP program is contrary to Congress’s intent. Why waste the ink to say that for purposes of the Code, the loan forgiveness is not includible in income, if the government will just take away deductions in the same amount?

The AICPA believes the intent of the CARES Act was to allow businesses to deduct all their ordinary and necessary expenses — including any expenses used in determining PPP covered costs. The AICPA plans to seek legislative clarification. In fact bipartisan group of Senators introduced legislation Wednesday to enable small businesses to deduct their expenses even if they have received a loan from the federal government’s Paycheck Protection Program that was later forgiven.

We will keep you abreast of any further developments.

Reach out to us: If you have received a PPP Loan and are struggling with the rules and regulations, we have a team of experts ready to help and a PPP Loan Forgiveness Guide HERE. Please reach out to us for assistance at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .