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IRS Issues Guidance Prohibiting Deductions for Business Expenses Paid for With A Forgiven PPP Loan

The Internal Revenue Service (IRS) has issued new guidance, in the form of Frequently Asked Questions, to clarify that businesses that secure Paycheck Protection Program (PPP) loan forgiveness do not have the ability to deduct business expenses paid for by the loan.

Specifically, the guidance makes clear that companies that have received PPP loan forgiveness, or have a reasonable expectation that the government will not require the company to pay back the money, cannot deduct the business expenses paid for by the loan. This guidance affirms a position the IRS took in April. Businesses that do not receive loan forgiveness, however, can still deduct the business expenses used with the loan. According to the guidance, if the request for loan forgiveness is “denied, in whole or in part, or the taxpayer decides never to request forgiveness” companies can still write off the payroll, mortgage, and utility costs paid for with PPP money.

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