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IRS rules forgiven PPP loans excluded from taxable income, but there's a catch
Posted on 5/1/20 at 8:26 am
Posted on 5/1/20 at 8:26 am
quote:
The Paycheck Protection Program offers an alluring loan of up to $10M tax free. If you comply, you don’t even have to pay it back. What’s more, there is no forgiveness of debt income when your loan is forgiven, something that is standard fare if you are relieved of paying back debt. However, IRS Notice 2020-32 confirms you can’t claim tax deductions, even if the wages, rent, etc. that are normally fully deductible.
quote:
Since the PPP came out, it has been roiled in controversy, with the SBA and banks offering a less than seamless roll out, and a true run on the bank that depleted all the money very fast. Congress eventually came to the rescue by authorizing more money, but that seems likely not to last very long either. And the FAQs and other pieces of guidance have been fast and furious. So has speculation about various points. There have been debates about the tax deduction point, with some people saying you could still deduct the wages, since the CARES Act did not seem to say otherwise. But under traditional tax principles, it seemed too good to be true that you could get the free money, not pay discharge of debt income, and still deduct the payments of wages and rent made with the free money. The IRS notice confirms that.
IRS Denies Tax Deductions For Wages, Rent Paid With Forgivable PPP Loans
4
Posted on 5/1/20 at 8:29 am to Brummy
Makes sense to me. Am I missing something?
Posted on 5/1/20 at 8:34 am to Brummy
Yeah that is how I always assumed it would work. There's no way they would make it non-taxable and also give you a tax deduction for it.
Posted on 5/1/20 at 9:02 am to Brummy
A lot of people are hollerin' mad this morning, including a number of my fellow CPAs, but I have absolutely no issues with this.
Either, 1) The government paid your expenses, and since you did't have to pick up any income, it makes sense you can't take a deduction, or
2) You ultimately got an increased cash flow, and thus you should pay tax on that, but after-tax you are still in a better financial place than you were if you had not taken the money.
It does speak further to the fact that the government should have gotten this all sorted out before the money started.
Either, 1) The government paid your expenses, and since you did't have to pick up any income, it makes sense you can't take a deduction, or
2) You ultimately got an increased cash flow, and thus you should pay tax on that, but after-tax you are still in a better financial place than you were if you had not taken the money.
It does speak further to the fact that the government should have gotten this all sorted out before the money started.
Posted on 5/1/20 at 11:14 am to Brummy
So basically, when you write off the forgiven portion. You'll credit the expenses that we're covered, rather than other income, or some sort of M1 adjustment?
Posted on 5/1/20 at 11:55 am to LSUFanHouston
What I don't get is why even mention that it's not treated as income in the first place?
This is essentially the same as treating it as income and then deducting the expenses you used the proceeds for. Assuming it is 100% forgiven.
Count both sides of it or don't count both sides of it, you're still ending up with the same net number.
This is essentially the same as treating it as income and then deducting the expenses you used the proceeds for. Assuming it is 100% forgiven.
Count both sides of it or don't count both sides of it, you're still ending up with the same net number.
Posted on 5/1/20 at 12:28 pm to SLafourche07
quote:
What I don't get is why even mention that it's not treated as income in the first place?
The CARES Act did this.
quote:
This is essentially the same as treating it as income and then deducting the expenses you used the proceeds for. Assuming it is 100% forgiven.
Correct.
Maybe the IRS was giving a shot at Congress that if they meant for the forgiveness to be tax free and for the expenses to be deductible, that they need to legislatively do it.
Posted on 5/1/20 at 12:42 pm to LSUFanHouston
quote:
quote:
What I don't get is why even mention that it's not treated as income in the first place?
The CARES Act did this.
Exactly. That to me shows that this IRS ruling does not fall in line with the "intention" of the CARES Act.
quote:
Maybe the IRS was giving a shot at Congress that if they meant for the forgiveness to be tax free and for the expenses to be deductible, that they need to legislatively do it.
I suppose and I hope so. Not for me, I didn't apply for the PPP, but for my clients and other small businesses. If this was known before I'd be willing to bet many small businesses would have just allowed their employees to collect unemployment.
Posted on 5/1/20 at 2:51 pm to LSUFanHouston
quote:
LSUFanHouston
I agree until JBE runs us all out of business anyway.
I never assumed I'd get the PPP, but I never thought for a second they were going to make it basically tax free and you could still claim the wages paid through it. That's asking a little much IMO.
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