IRS Issues Guidance on Treatment and Deductibility of PPP Expenses

Under Revenue Ruling 2020-27, a taxpayer who received a covered loan guaranteed under the PPP, and paid or incurred certain otherwise deductible expenses may not deduct those expenses in the taxable 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 on the basis of the expenses it paid or accrued, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of the year.

Under Revenue Procedure 2020-51, two safe harbors are provided for allowing a deduction in 2020 if they meet certain requirements.  

1. The taxpayer paid or incurred eligible expenses in 2020 for which no deduction is permitted because at the end of
     the 2020 tax year the taxpayer reasonably expects to receive forgiveness on the loan; and

2. The taxpayer submitted before the end of the 2020 tax year, or as of the end of the 2020 taxable year intends to
     submit in a subsequent tax year, an application for covered loan forgiveness to the lender; and

3. In a subsequent tax year, the lender notifies the taxpayer that forgiveness of all or part of the covered loan is
    denied.

1. The taxpayer meets the requirement of (1) and (2) above; and

2. In a subsequent tax year, the taxpayer irrevocably decides not to seek forgiveness for some or all the covered loan.

Congress may consider legislation on this issue and we will continue to monitor for any additional guidance that may be issued.