As we discussed in our email blast on Friday April, 14th, Congress did not specify in the CARES Act whether expenses paid with Paycheck Protection Program (PPP) loan proceeds would be deductible to the extent the PPP loan is forgiven. In other words, would you be able to deduct these expenses (rent, utilities, “payroll costs”) and be able to receive tax-free loan forgiveness?
On April 30th, 2020, the Internal Revenue Service issued Notice 2020-32. This Notice provides guidance on the deductibility, for Federal tax purposes, of expenses that have been forgiven under the Paycheck Protection Program. In summary, the IRS ruled that any expenses (rent, utilities, “payroll costs”) that are paid are nondeductible to the extent they are used to receive loan forgiveness – tax-exempt income. Per Notice 2020-32, this prevents a double tax benefit.
As you can imagine, this news is a shock to many PPP borrowers including many pharmacy owners. There are some members of Congress already speaking out against the IRS position indicating the ruling goes against the legislative intent. We will have to wait and see if Congress acts to amend and clarify within the potential fourth round of stimulus.
Lastly, we still don’t have guidance on loan forgiveness, but we expect guidance any day now. The AICPA (American Institute of Certified Public Accountants) has issued recommendations which, in some cases, are materially different from the law and guidance many have used to this point. Brace yourself for more surprises down the road and as always, stay tuned to Sykes & Company, P.A., the premier accounting firm for pharmacies, for the latest information and what it means to you and your pharmacy.
Our advisors work with independent pharmacies all across the country. Throughout the years, we have worked with pharmacies to improve their cash flow, mitigate their tax burden and help them make time to serve their patients and communities.