New IRS efforts may destroy tax deductions for PPP-paid expenses

If you, or someone you know, took a ‘Paycheck Protection Program’ loan – read what this outer East Portland CPA says about how it may radically alter your tax return …

Kevin R. Minkoff, CPA, heads into his offices in the Hazelwood neighborhood, ready to help clients now puzzling over the current disagreement between the US Congress and the Internal Revenue Service.

Story and photos by David F. Ashton

A federal Small Business Administration loan, called the Paycheck Protection Program, (PPP) was created to help businesses keep their workforce employed during the COVID-19 coronavirus crisis.

But, a disagreement between United States Congress and the Internal Revenue Service (IRS) may trigger unforeseen tax consequences for the many outer East Portland businesses it was designed to help, says Kevin R. Minkoff, CPA, a Certified Public Accountant since 1983, who started his practice in outer East Portland in 1998.

“The fact is, the original loan forgiveness legislation was badly written and makes the expenses paid for by the PPP loan funds non-deductible; the effect is, essentially, making the loan taxable – which was not the original intent of Congress,” Minkoff tells East Portland News. “However, the IRS is required to act upon how tax legislation as written, not what Congress might have intended.”

Accountant and tax advisor Kevin Minkoff checks to see the latest information regarding the Paycheck Protection Program.

From what’s known, Minkoff surmises that when lawmakers originally passed the Paycheck Protection Program, they intended that under its provisions:

The taxpayer would not have to pay taxes on the forgiveness amount; and,
The taxpayer could also deduct the expenses that you paid with the PPP money.

But, in late April, the IRS issued “Notice 2020-32”, which asserts that PPP loan recipients may not deduct business expenses paid using the PPP monies which gave rise to forgiveness – defined as payroll, rent, utilities, and interest, Minkoff reports.

In a May 5, 2020, letter to Secretary of the Treasury Steven Mnuchin, Senator Chuck Grassley (Chairman of the Committee on Finance), Senator Ron Wyden (ranking member on the Committee on Finance), and Congressman Richard E. Neal (chairman of the Committee on Ways and Means) jointly stated that the IRS “got this wrong”, and that the intent of the CARES Act was for the PPP to be a tax-free grant.

Says new legislation needed
“It appears the IRS was unmoved by the lawmakers’ letter, and clarified: no deduction for the expenses paid with the PPP money,” observes Minkoff. “The IRS perhaps understood that lawmakers didn’t intend this; but, in the eyes of the IRS, the way that the lawmakers wrote the law created the problem.

“To fix it, lawmakers ‘simply’ need to pass a new law!” Minkoff states. “We’ve been expecting lawmakers would pass a new law and take care of this problem, but so far, this hasn’t taken place.”

The IRS digs in its heels
On November 18, 2020, the IRS made its position clear regarding deductions for PPP monies that were forgiven and spent on payroll, rent, interest, or utilities:

In Revenue Ruling 2020-27, the IRS ruled that one may not deduct expenses paid with the PPP loan monies if they have received, or expect to receive, forgiveness of those loan monies.
In Revenue Procedure 2020-51, the IRS set forth safe-harbor procedures to follow if one’s PPP forgiveness is subsequently denied, or if the taxpayer decides not to apply for forgiveness.

“One can continue to come out ahead, if you can’t deduct some or all of the expenses you paid with the PPP money, because you don’t pay taxes on the ‘income’ – [it’s just that] you just can’t deduct the expenses, as it currently stands,” opines Minkoff.

Let legislators know …
Having “cleaned-up” legislation is urgently needed, Minkoff says. “Let your lawmakers know whether you’re for or against deductibility – and that they need to act.”

Senate 3612 is the Senate bill to make the PPP forgiveness money used to pay business expenses tax deductible. Contact Oregon’s US Senators Ron Wyden [www.wyden.senate.gov/contact/ or (202) 224-5244] and Jeff Merkley [www.merkley.senate.gov/contact/]or by calling (202) 224-3753.
H.R. 6821 is the House bill to make the PPP forgiveness money used to pay business expenses tax deductible. CLICK HERE to find your US House Representative to let them know you care about this issue.

In addition to tracking scores of changes to the IRS code, Kevin Minkoff says the uncertainty about PPP is causing his clients concern.

A CPA’s suggestion
“Regarding the non-deductibility of expenses paid with PPP loan funds that were forgiven, I recommend waiting to see if we can get Congress to pass current legislation,” suggests Minkoff, reminding us that his opinions expressed here do not constitute legal or professional tax advice.

“Gather all tax information as you would ordinarily. March 15, 2021 is the tax deadline for S-Corporations and Partnerships; if, by that date, Congress has not passed legislation, [you can file to] extend the filing deadline for these entities,” Minkoff explains.

“The tax deadline for filing individual income tax returns and paying any income tax due is April 15, 2021,” adds Minkoff. “If Congress hasn’t passed the legislation by then, but still intends to, make a deposit of the amount of income tax that would be due without deducting these expenses.

“If Congress then passes the legislation, the extra income tax paid will be refunded,” Minkoff continues. “Taking this conservative approach will avoid the possibility of paying penalties and interest if not enough deposited, and if Congress does not pass the legislation.”

For more information about Kevin Minkoff CPA’s practice, see his website: CLICK HERE.

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