IRS released Revenue Ruling 2020-27 on November 18, 2020 clarifying the tax impact of receiving PPP Loan forgiveness as follows:
“A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”
If you received a PPP Loan and used those funds to pay for qualifying expenditures in 2020, those eligible deductions will not be allowed on your 2020 tax return. The Revenue Ruling indicates that the PPP loan applicant knew the amount of eligible expenses that qualified for reimbursement at the time of the application and had a reasonable expectation that the loan would be forgiven. Based on the authority provided in the ruling, this deemed “forgiveness” applies regardless of the status of your forgiveness application.
Please reach out to your MKS&H tax advisor to discuss the 2020 tax implications to your business.