More Clarity on PPP Forgiveness Announced by Treasury & IRS
On November 18, 2020, the IRS released Revenue Ruling 2020-27 to clarify the tax treatment of expenses attributable to a Paycheck Protection Program (PPP) loan. Specifically, the IRS ruled that a calendar year taxpayer that reasonably expects to receive PPP loan forgiveness may not deduct expenses attributable to PPP proceeds for the year in which the expenses were incurred. It does not matter if the PPP Loan is ultimately forgiven in a subsequent year; nor does it matter when the PPP forgiveness application is submitted.
The Revenue Ruling does not specifically address fiscal year taxpayers; however, it can be inferred that the same rules apply. Therefore, a September 30, 2020 tax filer who expended all PPP proceeds prior to their fiscal year end should consider these expenses as non-deductible during the period during which they were incurred.
With over five million approved PPP loans, many small business owners who received loans are not able to seek forgiveness and deduct their expenses as that would be considered a double benefit. According to the Treasury press release: “Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.
WM Wisdom:
This certainly isn’t the news most taxpayers were hoping to hear from the IRS. However, a silver lining is that taxpayers were informed well in advance of year-end as to the IRS position and therefore can modify planning strategies accordingly.
With the IRS position now solidified, it would take an act of Congress to modify the PPP Forgiveness taxability. WM will certainly continue to monitor any legislative changes before the tax filing due date.
Questions?
Should you have questions about PPP loan forgiveness or any other topics, please contact us at any time.
Additional References:
Click here to view the revenue ruling
Click here to view the revenue procedure
Click here to view the press release
DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
