Important PPP Loan Updates from the IRS and SBA

The latest from the IRS

Two very important items were released by the IRS on November 18, 2020 that impact taxpayers with PPP loans.

• IRS Revenue Ruling 2020-27
  • In ruling 2020-27 the IRS restates that expenses paid with PPP funds will not be deductible in 2020 if the taxpayer has a reasonable expectation of reimbursement (forgiveness) of the PPP loan. This ruling applies to loans forgiven in 2020 or in future periods.
  • “A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses may not deduct those expenses in the tax year in which the expenses were paid or incurred if, at the end of such tax year, the taxpayer reasonably expects to receive forgiveness of the covered loan based on the expenses it paid or accrued during the covered period, even if the taxpayer has not applied for forgiveness of the covered loan by the end of such tax year.”
• IRS Revenue Procedure 2020-51
  • Within IRS Revenue Procedure 2020-51, the IRS provides a Safe Harbor for taxpayers that are not granted forgiveness in 2021 or who decide to forego requesting forgiveness in 2021.  In these cases, the expenses may be considered deductible. The requirements are:
    • The taxpayer applied for forgiveness in 2020 but is notified in the subsequent year that all or part of the loan forgiveness is denied

    OR

    • The taxpayer does not apply for forgiveness in 2021 but irrevocably decides not to seek forgiveness of all or part of the PPP loan.
  • “This revenue procedure provides a safe harbor allowing a taxpayer to claim a deduction in the taxpayer’s taxable year beginning or ending in 2020 (2020 taxable year) for certain otherwise deductible eligible expenses, as defined in section 2.03 of this revenue procedure, if (1) the eligible expenses are paid or incurred during the taxpayer’s 2020 taxable year, (2) the taxpayer receives a loan (covered loan) guaranteed under the Paycheck Protection Program (PPP) authorized under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)), which at the end of the taxpayer’s 2020 taxable year the taxpayer expects to be forgiven in a taxable year after the 2020 taxable year (subsequent taxable year), and (3) in a subsequent taxable year, the taxpayer’s request for forgiveness of the covered loan is denied, in whole or in part, or the taxpayer decides never to request forgiveness of the covered loan, as described in section 3 of this revenue procedure.”

Please contact our office if you have any questions about this.