New IRS Guidance Issued - What if your PPP loan is not forgiven in 2020?

The IRS recently issued guidance, with Revenue Ruling 2020-27, on the timing of the non-deductibility of the expenses associated with the PPP loan funds received, and Revenue Procedure 2020-51 offering a safe harbor on how to deduct expenses for any unforgiven amount. The Revenue Ruling generally states that if a borrower has a reasonable expectation of loan forgiveness, expenses can’t be deducted to the extent that they’re paid for with the loan. That’s true regardless of when the loan is forgiven.

Revenue ruling 2020-27 provides that taxpayers who received PPP loans in 2020 and incurred otherwise deductible expenses may not deduct those associated expenses paid with the loans if they “reasonably expect” the loan to be forgiven.

Revenue Procedure 2020-51 provides that if a PPP loan recipient did not deduct an expense on their 2020 return, and some or all of the loan that they were expecting to be forgiven is not forgiven, they may either deduct the expenses on an emended 2020 return or deduct on their 2021 tax return.

Sincerely,

Alex Tucker

Faulk & Winkler, LLC

Baton Rouge, Louisiana