Payroll Protection Loans and Tax Treatment

On November 18, 2020, the IRS issued Revenue Ruling 2020-27 stating that a business which received a Paycheck Protection Program loan and paid otherwise deductible expenses with the proceeds, may not deduct those expenses in the year they were incurred if the taxpayer reasonably expects to receive forgiveness of the loan. This applies even if the taxpayer has not submitted an application for forgiveness or has applied for forgiveness but has not received a final determination. This ruling applies to calendar year and fiscal year taxpayers. In conjunction with this guidance, the IRS also issued Revenue Procedure 2020-51 that provides a “safe harbor” for later deducting those expenses if the loan is not ultimately forgiven.

Although there is still uncertainty regarding the position taken by the IRS and with the end of the year quickly approaching, we believe it is prudent for us to plan on no deduction for any expenses that will be used to request PPP loan forgiveness.  We have attached Rev. Rul. 2020-27 and Rev. Proc. 2020-51 if you would like to read them. 

Earle Crim, CPA