Tax Policy Now: Year-end tax planning and Paycheck Protection Program

Uncertainty continues to cloud deductibility of business expenses


Authored by RSM US LLP

Even as the IRS insists on disallowing Paycheck Protection Program borrowers from deducting business expenses funded by a forgiven loan, the prospect of legislative action to permit such deductions continues to create enough uncertainty that taxpayers should consider prioritizing flexibility as the pandemic rages on near the end of 2020.

“It’s a big deal for many taxpayers, as the tax impact really couldn’t come at a worse time,” said Ryan Corcoran, a senior manager and PPP specialist in RSM’s Washington National Tax practice.

Corcoran and Matt Talcoff, RSM’s national tax industry leader, joined RSM’s Tax Policy Now to discuss the latest PPP developments and how businesses and individuals can best position themselves, given the IRS’ adherence to precedent in seeking to prevent PPP borrowers from receiving a double tax benefit in the form of tax-free income and a deduction for business expenses.

Corcoran suggested that taxpayers could extend their returns to maximize their flexibility to wait for a potential fix. There are standalone bills in Congress that have bipartisan sponsorship and would ensure the IRS allows expense deductibility, which some policymakers have said was the intent of the original legislation in the CARES Act. Indeed, RSM has learned from discussions on Capitol Hill that there is a realistic chance deductibility will be permitted by either congressional or executive action.

“If you have a calendar-year tax return,” Corcoran said, “your due date for your business is either March 15 or April 15. You could extend that return out to September or October so that if Congress does fix the issue, you don’t have to go through all the administrative hassle of amending returns.”

Talcoff presented the possibility that the Small Business Administration might relax an eligibility requirement for businesses to use a streamlined application for PPP loan forgiveness. Currently, the loan threshold is $50,000.

“For businesses that have relatively small loans—let’s say $100,000 or less—maybe they want to wait and not go through that effort of pulling together everything they need now to submit the forgiveness application,” Talcoff said, noting businesses have 10 months from the end of their covered period to apply for forgiveness.”

Corcoran, at least, believes there’s a decent chance Congress will act to fix the expense deductibility issue within the PPP; he just isn’t sure of when.

“PPP, as part of the larger CARES Act, was really an example of Congress acting at its best,” he said. “There is a lot of support on both sides for PPP. There might be some bridges to cross still before PPP deductibility gets fixed, but, again, the optimistic side of me says this will be fixed for companies.”

To watch the whole discussion, which includes a segment on estate and gift planning, click the video above. For more information and resources about PPP loan forgiveness, visit RSM’s CARES Act Resource Center.