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By: Rebecca K. Wohltman

The IRS recently issued a General Counsel Memorandum and a subsequent notice advising taxpayers that receiving a PPP loan forgiveness letter may not be the final decision on PPP forgiveness.

In General Counsel Memorandum 202237010 and News Release 2022-162, the IRS essentially announced that it believes it has the right to audit whether PPP funds were spent for qualifying expenses and whether PPP loans actually qualified for forgiveness, regardless of whether the taxpayer received confirmation that the PPP loan was forgiven. If the IRS concludes in the audit that the PPP funds were NOT used for qualifying expenses, the IRS will likely propose to increase the taxpayer’s income by the amount of the PPP loan it concludes was improperly forgiven.

If a company received a PPP loan and spent the funds on non-qualifying expenses, even if the company received a letter confirming the loan was forgiven, the company should not assume the forgiveness letter is the end of the analysis.

If a company is selected for audit, it should presume that the IRS will examine the use of PPP funds to confirm whether all PPP funds were used for qualifying expenses.

All companies that received PPP loans should maintain clear records of how those funds were used for several years yet. Do not presume that the PPP loan forgiveness letter will be all you need to satisfy the IRS if your company is selected for an audit.

This announcement from the IRS is intended to give the federal government another tool to pursue companies that improperly used PPP funds. Improper use of PPP funds has been a top focus of civil and criminal investigations and will continue to be so for several years.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.