PPP Loan Forgiveness Questions Answered
In the Revenue Ruling 2020-27 and Revenue Procedure 2020-51 the IRS answered a few important questions about deducting expenses paid from a PPP loan. Other questions answered are what if a taxpayer has a PPP Loan in one year but does not receive forgiveness until the next year, or if they expect to get forgiveness but are then denied it?
According to Revenue Ruling 2020-27 when the loan is forgiven or if it is expected to be forgiven. the taxpayer CANNOT deduct the normally deductible expenses that were used for the forgiveness or predicted forgiveness of the PPP Loan. This applies to both calendar and fiscal year taxpayers.
This means that if you pay the expenses in 2020 and apply for the loan forgiveness using these expenses you cannot deduct any of those expenses. Even if you receive the certification of forgiveness in the following year you still cannot deduct any of the 2020 expenses used for the forgiveness. Lastly, if you expect to get the loan forgiveness in the following year you cannot deduct the expenses.
If a taxpayer expects to get loan forgiveness and does not deduct the expenses but is then rejected for the loan forgiveness. They can then deduct those expenses used for the rejected PPP Loan forgiveness. They can do this on the 2020 tax return, amended return, or the original 2021 return (if the denial happens in 2021). This is found in the Revenue Procedure 2020-51.
If you would like to learn more or to set up a consultation call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730.
The above information is of a general nature only and should not be relied upon for specific situations.