https://www.sikich.com

Wisconsin Will Not Follow Federal Law Permitting Deduction of PPP Loan Expenses

Sikich

Jan 20 2021

3 min read

The Wisconsin Department of Revenue (WDR) released guidance on January 15, 2021 on how PPP loan expenses will be treated for Wisconsin tax purposes. Congress recently enacted the “Consolidated Appropriations Act, 2021” (“CAA”) to allow PPP loan expenses to be deductible retroactively to the passage of the CARES Act on March 27, 2020 (as well as prospectively). Thus, a federal deduction will be permitted for PPP loan expenses in 2020 and after. Wisconsin, however, has not adopted any provisions in the CAA bill and, therefore, is looking at the federal law in place prior to the CAA.

The previous law under CARES followed the guidance spelled out by the IRS in Rev Rul 2020-27 and IRS Notice 2020-32 that disallowed the deduction for these expenses and did so as these expenses were incurred. As a result, Wisconsin will not permit the deduction for PPP loan related expenses, and these expenses will not be deductible as they were incurred in 2020 (following the timing of Rev Rul 2020-27). Below is the excerpt from this WDR guidance that was released on January 15, 2021:

(From WDR Information Published on January 15, 2021)

Paycheck Protection Program Expenses –

The Act provides that expenses paid with forgivable Paycheck Protection Program (PPP) loan proceeds are deductible for federal tax purposes (see secs. 276(a) and 278(a) of Division N of Public Law 116-260). However, Wisconsin law follows federal law prior to amendments made by the Act. Therefore, expenses incurred that are paid with the forgivable PPP funds are not deductible for Wisconsin income/franchise tax purposes. Wisconsin follows the interpretation of federal law prior to modification by the Act, which is described in Revenue Ruling 2020-27:

“A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”

Note: Although Revenue Ruling 2020-27 was made obsolete as a result of the Act, it still interprets federal law prior to the Act.

Again, the above is the WDR’s position on the tax treatment of PPP expenses following the recent federal CAA law change. It is unclear, however, what the Wisconsin legislature may do with this issue and whether it will offer legislation that would permit a Wisconsin tax deduction to follow the federal treatment. Please contact your Sikich advisor with any PPP questions or for assistance.

CLICK HERE FOR MORE RESOURCES

References

WDR Announcement Released January 15, 2021
IRS Rev Rul 2020-27
IRS Notice 2020-32
IRS Rev Rul 2021-02

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author

Sikich

Sikich is a global company specializing in technology-enabled professional services. With more than 1,900 employees, Sikich draws on a diverse portfolio of technology solutions to deliver transformative digital strategies and is comprised of one of the largest CPA firms in the United States. From corporations and not-for-profits to state and local governments and federal agencies, Sikich clients utilize a broad spectrum of services* and products to help them improve performance and achieve long-term, strategic goals. *Securities offered through Sikich Corporate Finance LLC, member FINRA/SIPC. Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor. 