PPP Forgiven Funds are NOT Deductible

[Greg O'Brien]

IRS released guidance yesterday saying that any PPP expenses that are forgiven are NOT deductible for Fed income tax purposes.  In essence, the forgiven funds are taxable, in direct conflict with the Cares Act.  Congress addressed forgiven income in the Cares Act but not deductibility.

Many tax pros have been wary of this for weeks and the IRS dropped the hammer yesterday.

However, already saw Sen Grassley saying that this was not the intent and he was disappointed with the IRS.  I suspect we haven't heard the last word but for tax planning purposes, people should be aware of the implications laid out.

[Michael Plaks]

@Greg O'Brien

On another post, I accused you of being a lawyer. Now, worse, you're a politician :)

No, it does not make the PPP funds taxable. They remain non-taxable, as the Act prescribes. You get free money, you pay something with this money, payroll in this case, and THAT is not deductible. Which would be double-dipping, properly disallowed by the IRS. 

You can never deduct something you did not pay for. In this case, the govt paid your payroll for you. You had $0 payroll cost, but also $0 deduction for it, correctly so.

I'm rarely on the IRS side, and this is one of these rare cases.