IRS Clarification of Nondeducibility of PPP-Funded Expenses Draws Congressional Opposition Yesterday the IRS issued guidance on the deductibility of expenses paid with Paycheck Protection Program (PPP) loan proceeds. These two new documents confirm the IRS’s position that expenses paid with PPP loan proceeds will be nondeductible by businesses when the loan is likely to be forgiven. In a prompt response yesterday, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Democrat Ron Wyden (D-Ore.) issued a joint statement advising that they are working to pass legislation by the end of the year to clarify that forgiven PPP loan expenses will be fully deductible. NADA continues to urge Congress to reverse the IRS interpretation and restore full deductibility of forgiven expenses funded with PPP loans. ATAEs and dealers raised this issue during the virtual Washington Conference meetings with members of Congress in September, and NADA has been urging congressional leadership and staff to resolve this issue favorably during the lame duck session. For more information about the IRS clarification, please see the following new documents.

  • Proc. 2020-51 clarifies that businesses that do not file for forgiveness or are denied forgiveness will be permitted to deduct PPP funded expenses through a safe harbor procedure.
  • Rul. 2020-21 clarifies that disallowed expense deductions due to PPP loans occur in tax year 2020, regardless of whether forgiveness is granted in 2020 or 2021.

Dealerships with PPP loans are encouraged to discuss these new developments with their tax advisor. Additional information on the PPP is available on NADA’s Coronavirus Hub.