Congress Reverses IRS, Makes PPP Expenses Deductible

Businesses hoping to be able to deduct expenses associated with loans uner the Paycheck Protection Program are getting what they wanted, thanks to provisions in the spending bill Congress passed Monday.

Reversing an earlier decision by the Internal Revenue Service not to allow deductions for those expenses –that was the IRS position as recently as November — Congress wrote into its more than 5,000-page bill provisions allowing those deductions.

The decision applies not only to PPP loans from the CARES Act passed in March, but also for the $284 billion second round included in the newest legislation.

The American Institute of Certified Public Accounts – among others – has been pushing to make those expenses deductible.

“The language clearly states that it will be deductible,” Barry Melancon, president and CEO of the AICPA, told members of the group in a video chat Monday. “In fact, the language goes so far as to say expenses paid in PPP2 will be deductible.”

According to the Journal of Accountancy, the latest COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.

Ursula Scroggs, managing director at Troy, Mich. based DKSS CPAs + Advisors, said businesses that took advantage of the PPP program are going to see big benefits in Congress’ decision to reverse the IRS. “This tax relief is huge for businesses that received PPP loans,” Scroggs said. “The ability to deduct eligible expenses funded by PPP loan monies results in businesses saving 21% to 37% in federal tax on those sums depending on the type of business entity.”