On November 18, 2020, the U.S. Treasury Department and Internal Revenue Service released Revenue Ruling 2020-27 and Revenue Procedure 2020-51 clarifying the tax treatment of expenses that are eligible for PPP loan forgiveness.
Revenue Ruling 2020-27 indicates that a taxpayer that received a PPP loan and paid or incurred certain otherwise deductible expenses, may not deduct those expenses if, at the end of the taxable year, the taxpayer reasonably expects to receive forgiveness of the PPP loan based on those expenses. It does not matter whether the taxpayer has completed and submitted the loan forgiveness application or actually received forgiveness prior to the end of the taxable year.
Revenue Procedure 2020-51 provides guidance on how to treat expenses that were not initially deducted in a tax year if the PPP loan is ultimately not forgiven, in whole or in part, or the taxpayer decides not to apply for forgiveness. In that case, the taxpayer may deduct the expenses either:
- In the 2020 tax year on an original or amended return; or
- On a subsequent tax year in which the loan forgiveness was denied.
Prominent members of Congress from both sides of the aisle have stated that their intention was that the expenses should be deductible. We remain hopeful that Congress will pass new legislation that clearly allows a deduction for eligible expenses.
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