IRS Issues Guidance Stating Expenses Paid with PPP Funds are NOT Deductible for 2020 Tax Year
As this unprecedented year draws to a close, the administration has again issued late guidance regarding the proper treatment of Paycheck Protection Plan loans. Late on Wednesday, November 18, 2020 the IRS issued Revenue Ruling 2020-27.
This guidance clearly states that eligible expenses paid with PPP proceeds are not deductible in 2020 if the borrower “has a reasonable expectation of forgiveness during 2020 or 2021”. In simple terms, if we can expect the loan to be forgiven in 2020 or 2021 then we can not deduct the expenses covered by the loan. This has the same impact as making the forgiven amount taxable in 2020.
This rule applies whether you submit the PPP application for forgiveness in 2020 or wait until 2021.
The IRS also issued Revenue Procedure 2020-51, outlining the correct treatment for when the actual forgiveness differs from the expected amount. This further confirms the IRS position and treatment that the forgiveness should be recognized as if it occurred in 2020.
These late notices reinforce the criticality of 2020 tax planning to develop strategies to minimize your overall tax liability and address additional taxes due related to the recognition of PPP funds in 2020.
Please contact us immediately to address your 2020 tax planning strategies. Additionally, if you have any questions regarding these notices and their treatment, please do not hesitate to contact us.
