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PPP Loan Forgiveness and Deductions Update

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November 23, 2020

Dear Clients, Colleagues and Friends,

The Internal Revenue Service has issued new guidance concerning the deductibility of expenses used to obtain Paycheck Protection Program (PPP) loan forgiveness. This new guidance is provided in Revenue Ruling 2020-27 and Revenue Procedure 2020-51. The new guidance provides much needed clarity as to whether a PPP loan borrower’s decision to wait to apply for PPP forgiveness will impact their 2020 taxable income.

Prior to this guidance there was confusion amongst PPP loan borrowers and their tax advisors as to whether 2020 taxable income would be impacted if a borrower did not receive PPP loan forgiveness by the end of 2020. This new guidance indicates that a PPP loan borrower may not deduct otherwise deductible expenses that were used to obtain their PPP loan forgiveness on their 2020 tax return if the PPP loan borrower reasonably expects to receive PPP loan forgiveness, regardless of when a PPP loan borrower either applies for or receives forgiveness from the Small Business Administration. In the event that the PPP loan borrower does not receive 100% PPP loan forgiveness, there is a safe harbor provision that allows them to deduct the expenses related to the non-forgivable portion on either their 2020 tax return (originally filed or amended) or a subsequent tax year.

PPP loan borrowers who anticipate qualifying for forgiveness are encouraged to discuss how this new guidance impacts their 2020 taxable income with their tax advisors. P&N is available to evaluate the impact as part of your comprehensive year-end tax planning. 

Our team is here to help during the PPP loan forgiveness process. P&N will continue to monitor the latest guidance issued by the U.S. Department of the Treasury and the U.S Small Business Administration. For all of our COVID-19 updates, please visit our website at www.pntax.com and our COVID-19 updates page at https://www.pntax.com/covid-19/

If you have any questions or need further information, please contact your Presti & Naegele professional directly, or dial 212-736-0055 for immediate assistance. Stay safe.

Presti & Naegele