The headline is correct—that question mark at the end is there for a reason. While we typically do not like to speculate too much, we couldn’t ignore the latest round of rumors floating around the tax interwebs.
It is being reported that AICPA officials are being advised by the Treasury that they anticipate issuing more guidance before the end of the year, and possibly by the end of November, generally stating that if a borrower has a reasonable expectation of loan forgiveness, the expenses can’t be deducted to the extent they’re paid for with the loan. This would be true regardless of when the loan is forgiven.
It is widely held in tax circles that, until the PPP loan is forgiven, it’s a loan—which means the expenses are deductible in 2020 if PPP borrowers do not receive forgiveness until 2021. There are arguments to be made on both sides of the issue, which provides an opportunity for tax planning, but the consistent opinion is that the expenses are deductible until the tax year in which the loan is forgiven.
This supposed guidance—should it be issued by the Treasury—throws all of that into a tizzy. One would think that, if you’ve prepared an application showing full forgiveness, you have a reasonable expectation of loan forgiveness, even if you haven’t submitted the application yet. Here’s the problem, the Treasury doesn’t make tax law—Congress does—and there’s plenty of support in the Tax Code and Regs (not to mention case law) for deferring the disallowance of expenses until the loan is forgiven.
So what do we do? For now, we wait—but there’s no reason we can’t plan while we do that. Run the calculations, make sure your cash flow can handle the acceleration of a potential tax liability if you weren’t planning on forgiveness in 2020.
Questions on submitting your PPP loan application or the forgiveness process?
Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.