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Your PPP Expenses May Be Deductible

The Paycheck Protection Program (PPP) provides loans of up to $10 million at 1% interest to employers with fewer than 500 workers to cover some payroll and overhead.  A key feature of a PPP loan is that recipients can apply to have their loans forgiven.

Taxpayers have been wondering though whether they can deduct their business expenses paid with PPP money. On April 30, 2020 the IRS issued Notice 2020-32, which concluded that business expenses paid with forgiven PPP loans are not deductible.

Some Senators and Congressmen pushed back on the IRS’s position taken in Notice 2020-32, saying expenses paid with PPP loans should be tax deductible based on their belief it was the intent of the CARES Act to provide that benefit.  Earlier in the summer of 2020, a bill that would make PPP expenses deductible seemed likely to pass, but that looks less likely now.

So, what are taxpayers to do?  Do they follow the IRS position announced in Notice 2020-32 or take some other action? We believe there is a strong tax return position in favor of deducting some, if not most, expenses paid with a PPP loan.  But, taxpayers that take a return position contrary to Notice 2020-32 face significant penalties if their position is not supported by a tax opinion that analyzes the relevant facts and legal authority. We have drafted such a tax opinion.

If you would like to find out if our tax opinion may apply to your facts, please contact us.

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.