IRS: Companies who receive PPP loans will not qualify for tax deductions
The IRS on Thursday said any forgivable loans through the Paycheck Protection Program (PPP) won’t be tax-deductible.
Under the PPP, a small business loan program created as part of the third, $2.2 trillion coronavirus relief bill, small businesses wouldn’t have to repay the low-interest loan they received as long as the loan went to essential expenses such as maintaining payroll.
Usually, wages are deductible expenses and forgiven debt counts as taxable income.
However, the IRS ruled that allowing the loans to be tax-deductible would create a “double tax benefit” for small businesses.
To waive the deductions, the IRS invoked Section 256 of the tax code, which states that deductions can’t be taken if they are tied to a certain class of tax-exempt income.
If desired, Congress could override the IRS’s stance by passing a law that explicitly allows the deductions. It has done so previously for religious leaders and military service members, allowing them to deduct property taxes and mortgage interest even if they’re receiving tax-free housing allowances.