Originally published on Forbes.com.

As the Paycheck Protection Program unfolded, one of the biggest disappointments was IRS giving notice that payments made under the program would not be deductible. A few foresighted souls had seen that coming, but the general view was that they would be deductible, since denying the deductions made the provision of the act indicating that loan forgiveness was not taxable income kind of pointless.

Help May Be On The Way

There is a good chance that there will be further clarification on this matter, but I would not rule out the situation not changing given the chaotic nature of our politics. So I thought it would be worth taking a look at the strategy of taking the deduction anyway – Notice 2020-32 to the contrary notwithstanding.

I contacted AICPA (American Institute of Certified Public Accountants). As we were going back and forth, they issued a press release supporting a legislative fix that is in the works

“The American Institute of CPAs (AICPA) expressed its support for S. 3612 – the Small Business Expense Protection Act of 2020 – in a letter thanking Senators John Cornyn (R-TX), Ron Wyden (D-OR), Marco Rubio (R-FL), Tom Carper (D-DE) and Chuck Grassley (R-IA).”

“It is clear that Congress intended to allow a full deduction for PPP related expenses…This important legislation helps ensure that small business taxpayers affected by the ongoing pandemic will receive the full intended benefits of the CARES Act” (Emphasis added)

What If Help Does Not Arrive

When it comes to whether we have support for taking the deduction absent additional legislation AICPA is less sanguine.

They gave me a statement from Amy Wang, Senior Manager for Tax Policy and Advocacy:

“CPAs would not advise their clients to take a deduction for ordinary business expenses (related to forgiven PPP loans) because the IRS/Treasury Notice 2020-32 is very clear that the expenses are not deductible if resulting from loan forgiveness.

Also, Treasury Secretary Mnuchin has publicly defended IRS Notice 2020-32”

For The Bold

You might want to print this out and put it in a tickler file for when the time comes to file 2020 returns. If there is no further guidance from Congress or the IRS, consider taking the deduction anyway particularly if 2020 turns out to be a loss year even without the deduction.

In the just making the loss bigger scenario, you will be having the argument with the IRS relative to a refund claim from your loss carryback. It would be prudent to clearly disclose what you are doing.

Just remember, you didn’t get the advice from the AICPA. You got it from a former member, who is too cheap to keep paying the dues.

Somebody Will Do It

I’m going to stick my neck out and predict that quite a few taxpayers will take the deduction, many of whom will be blissfully unaware of the notice. If the IRS decides to pay attention to the matter, somebody will litigate it and I really think it could go either way.

So if you are not bold, put this in your tickler file for late 2023. You can think about putting in protective refund claims. Be sure not to cut the deadline close. Given how long these things take, we won’t know the answer till maybe 2025 at the earliest, but nothing ventured nothing gained.

Another County Heard From

Attorney John Anthony Castro is rather passionate that the IRS is wrong and is offering to write opinion letters and prepare returns on that basis. I have published his detailed argument and my concerns with it on Your Tax Matters Partner.