The rollout of the Payroll Protection Plan loans has been fraught with peril for not only those trying to take the benefit but also for those advising them. The program’s stated goal was to provide a quick influx of cash for small businesses to help them cover expenses, especially payroll, through the pandemic. But once the initial bill was passed, the details had to be ironed between the Small Business Administration and the Internal Revenue Service, and the trouble began. The SBA released several rounds of interim final guidance. Simultaneously, the IRS quickly stated that expenses paid for with forgiven proceeds would not be deductible. While Congress acted outraged, it would not pass a bill overruling the IRS for almost nine more months.

The Federal Fix

At the end of December, as part of the appropriations bill and newest COVID relief bill, Congress fulfilled its promise to overrule the IRS and make expenses deductible, regardless of if they were paid for with forgiven proceeds. If Congress had acted quickly, this would be the end of the subject, but the long delay has caused additional problems, and taxpayers are still left to deal with the mess.

The State Problem

With Congress’s inaction and a looming tax season ahead, many states had a decision to make, how would they handle the changes introduced by the initial COVID relief bill, including treatment of the forgiven proceeds. Some states have rolling conformity, allowing them to adopt changes as they occur. Other states have static conformity meaning they conform to the federal law based on a specific date. Depending on the state and what date they picked to conform to the federal law, states may still disallow deductions associated with the forgiven PPP loans.

What about Georgia

In general, Georgia follows the static conformity policy. Last year, the GA legislature passed a bill updating the conformity date to March 27, 2020. The bill contained many exceptions in which Georgia chose not to follow the federal law. However, a full accounting of those is beyond the scope of this article. Notably absent was a divergence from the treatment of PPP related expenses. Now Georgia taxpayers are stuck with a state law conformed to a federal law that has since been reversed. Until the Georgia legislature updates conformity, taxpayers should be conscious of the differences between federal and state law.

If you have questions about whether your expenses are deductible, or would like to discuss your situation, you can contact us to set up a time to talk more.