The IRS has reiterated its position that taxpayers can’t deduct expenses paid for with Paycheck Protection Program (PPP) loan money if the loan is forgiven:
- According to the Rev. Rul. 2020-27, expenses paid for with forgiven PPP loan money are not tax deductible (link to guidance is HERE). The IRS clarified that the expenses are non-deductible in 2020 regardless of whether the taxpayer has received loan forgiveness by the end of 2020 or simply has a reasonable expectation that the loan will be forgiven.
- A related Revenue Procedure (Rev Proc. 2020-51 is HERE) allows the taxpayer to deduct the expenses if they don’t intend to pursue forgiveness or if the loan forgiveness is subsequently denied in full or in part. The deduction can occur on the 2020 or 2021 tax return depending on when those tax returns are filed.
The AICPA and other interested parties continue to push for PPP loan forgiveness to be non-taxable as originally intended, however, at this point, only Congress can overturn the IRS ruling.
This is a developing story. We will continue to update you as we can. If you need assistance or have questions about how to proceed, contact us.