November 2020
On November 18th, the US Treasury and IRS released guidance on the tax deductibility of expenses related to PPP funds. Previously, the IRS released guidance, Notice 2020-32, noting that the expenses were not deductible, but left many unanswered questions. This new guidance does provide clarity, but unfortunately does not provide for the deductibility of eligible expenses we are hoping for. The AICPA continues to advocate for the deductibility and does anticipate this will occur with a future stimulus package. However for the time being, we remain with the above legislation. We will continue to prepare our tax planning scenarios using both situations and explain to you the differences.
The newly issued guidance, Rev Ruling 2020-27, clarifies that a taxpayer that received a PPP loan may not deduct expenses paid or incurred if at the end of the taxable year, the taxpayer reasonably expects to receive loan forgiveness. This is true if the taxpayer has applied for forgiveness by the end of 2020 but has not received notification of forgiveness by the end of the year, or if the taxpayer has not applied for forgiveness by the end of 2020 and expects to apply for forgiveness in 2021.
New Rev Proc 2020-51 describes a safe harbor allowing a taxpayer to deduct the expenses in 2020 if
the expenses were paid or incurred in 2020,
the taxpayer received a loan under the PPP,
the taxpayer submitted loan forgiveness application before the end of 2020 or intends to submit in a subsequent year, and
in a subsequent tax year, the taxpayer’s request for loan forgiveness is denied (in whole or part) or the taxpayer never decides to apply for forgiveness.
Under this safe harbor, the taxpayer may deduct some or all of the expenses, but must attach a detailed statement to a timely filed, including extensions, 2020 tax return, an amended 2020 tax return, or a tax return for the subsequent tax year regarding the details of the loan and eligible expenses. The details of the statement are included in the attached Rev Proc.
As always, we will continue to keep you informed of recent updates.
Please let us know if you have any questions.
