ST. LOUIS — The IRS has changed one of the key benefits on what's taxable and what's not in the Paycheck Protection Program, leaving borrowers up in arms, a St. Louis tax adviser warns.
Previously, loan proceeds that are forgiven under PPP had been considered nontaxable income to the business. This part has not changed. However, under the change issued April 30, the IRS is now disallowing the tax deduction for any expenses paid with PPP loan proceeds that are ultimately forgiven.
"By disallowing these expenses for tax purposes, some would argue the IRS has made it as if the loan forgiveness itself is now taxable income," Dave Finklang, a partner at Anders CPAs + Advisors, said. "It's a huge point of frustration for anybody who has received a PPP loan, is going to receive one, or advises businesses in the program, including CPAs."
For example, if a business received a $500,000 PPP loan, and used the full amount in the eight-week covered period to pay $400,000 in payroll costs, $80,000 in rent, and $20,000 in utilities, the full $500,000 loan could be eligible for forgiveness.
"Before this change from the IRS, the loan forgiveness would not have been taxable income. Additionally, the $500,000 in expenses would have been tax deductions for the company," Finklang said. "Now, under the change, the payroll costs, rent, and utilities paid with the loan would not be tax deductions."
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