Update on PPP Forgiveness Funds

By November 23, 2020 January 8th, 2021 Audit & Accounting, Recent Post
November 23, 2020

Update on PPP Forgiveness Funds

On November 18, 2020 the Internal Revenue Service (IRS) released Revenue Ruling 2020-27 and Revenue Procedure 2020-51 in order to clarify and expand on its position pertaining to the deductibility of expenses paid with forgivable Paycheck Protection Program (PPP) loans.
Revenue Ruling 2020-27 (https://www.irs.gov/pub/irs-drop/rr-20-27.pdf) reiterates the IRS position that no deduction is allowed for eligible PPP expenses if the payment of such expenses results in the forgiveness of a PPP loan. The ruling then further clarifies and elaborates that a taxpayer may not deduct such expenses in the taxable year in which such expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness, even if the taxpayer has not submitted an application for forgiveness by the end of such taxable year. Thus, in the case of a taxpayer who incurs PPP expenses in 2020 and applies for forgiveness in 2021, the PPP expenses will still not be deductible in 2020.
Revenue Procedure 2020-51 (https://www.irs.gov/pub/irs-drop/rp-20-51.pdf) provides guidance for situations where in 2021, the PPP loan forgiveness is either a) partially or completely denied; or b) the taxpayer decides not to apply for forgiveness. In such situations, the IRS generally provides 2 safe harbor options: 1)  The taxpayer may then deduct the applicable PPP expenses on its original 2020 tax return (or an amended 2020 tax return if the original tax return has already been filed); or 2) The taxpayer may choose to deduct the applicable PPP expenses on its 2021 tax return.
We will continue to monitor this issue and provide updates as any new guidance becomes available.
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