IRS Says Businesses with Forgiven PPP Loans Cannot Deduct Expenses

Businesses that get their Paycheck Protection Program (PPP) loans forgiven will not qualify for some valuable deductions, according to IRS guidance that reiterates its position taken in April. In addition, companies that have "a reasonable expectation that the government won't require them to pay back the money can’t deduct the business expenses paid for by the loan."

"If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not," according to a statement released by the Treasury Department. Companies denied loan forgiveness — or which never applied for it — can still claim deductions for expenses paid for with PPP money.

These include payroll, mortgage and utility costs. Reversing the IRS position on deductibility has been a point of bipartisan agreement, with Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and House Ways and Means Committee Chairman Richard Neal (D-Mass.) supporting legislative changes that would allow businesses to deduct expenses paid for with PPP money — regardless of whether the loan is forgiven. NAHB continues to advocate for Congress to address this issue, but it remains unclear if lawmakers will act prior to the end of the year.

To get the loans forgiven, borrowers must submit an application through the lender to the Small Business Administration. The agency has as many as 90 days to review it and make a decision.