Randy Crabtree, CPA and Phil Williams, JD, BSME

We have had many CPA’s recently ask how expenses included on the Payroll Protection Program (PPP) loan forgiveness application will affect taxpayers’ R&D credits for 2020. They also want to know if we have any recommendations for strategies available to help their clients maximize savings through both programs.

Soon after the PPP loans started to be funded, the IRS issued Notice 2020-32, which stated that
forgiven loans would be excluded from gross income and that the (otherwise deductible) expenses used to calculate the forgiveness, shall not be deductible.

As written, Notice 2020-32 could negatively impact, but not eliminate, taxpayers’ 2020 federal and state research credits since the non-deductible forgiven payroll expenses for an employee cannot be included in that employee’s wages when determining qualified wage expenses.

While this guidance was immediately challenged by legislators on both sides of the aisle as being contrary to congressional intent, a resolution has not yet been decided upon. Bills have been introduced in both houses of Congress to reverse the IRS ruling by statute, but the legislature needs more time to act.

Any changes that Congress enacts will likely be retroactive, however, for clients with the ability to delay filing of the application for forgiveness, it may make sense to do so.

As year-end planning approaches, we’d like to hear from you. What conversations are you having on this topic? Please feel free to reach out to us as we are happy to discuss the pros and cons of filing the application, as well as to discuss possible strategies that can be engaged in the best interest of your clients.