In a step that some say goes towards the intentions of the Payroll Safety Program, the IRS has issued steerage indicating that if a enterprise intends to have its PPP loan forgiven, then enterprise bills paid by the PPP funds wouldn’t be eligible for tax deductions.
When Congress handed the CARES Act and established the PPP, one of many highlights of this system was that borrowed cash could possibly be forgiven. Historically, while you borrow cash that isn’t meant to be paid again, it’s thought-about revenue, however Kathryn Pittman, with Postlethwaite & Netterville, says Congress created this system in order that it might not be thought-about enterprise revenue.
Earlier than the IRS issued the rule, some thought that not solely would the loans not be thought-about revenue, however they’d additionally nonetheless be eligible for tax deductions for these bills that wanted to be forgiven. However the IRS says that’s not per the traditional tax code and it doesn’t need companies to obtain what it calls a “double tax benefit.”
“Is that conclusion odd? Not generally,” says Pittman. “Did that conclusion give a lot of businesses concern when it came down? Yes, because people thought they were getting deductions, claiming further losses to get benefits in a later year. Essentially, the IRS followed its own rules that exist for taxation income, but that’s not what people had in mind with the program.”
Whereas she says the rule in all probability received’t bankrupt small companies, it makes this system much less useful than it might have been with the deductions, which may have generated bigger tax refunds from the federal government in later years.
“It’s putting cash pressure on businesses that are already cash strapped,” she says. “It’s just one more thing that will create pressure on businesses trying to survive the economic climate we’re in.”
Pittman says that whereas there’s been a concerted effort to get the ruling modified to be extra pro-taxpayer, information on efforts has been quiet the final week or so, though that doesn’t imply it received’t occur later.
U.S. Sen. John Kennedy instructed Every day Report in a written assertion that he thinks companies ought to be allowed to deduct payroll and different bills that they’re paying for with loans from the PPP.
“Unfortunately, it looks like making that happen may require a change in the law,” Kennedy says. “I’m not sure when Congress could pass another relief bill, but I’ll be ready to insist on making PPP expenses tax deductible when and if we pass another such a bill.”