The IRS has issued further guidance for businesses regarding Paycheck Protection Loan forgiveness and expense deductibility. Their original guidance can be found on IRS Notice 2020-32.

Revenue Ruling 2020-27 addresses the deductibility of expenses paid for with a PPP loan that is expected to be forgiven but forgiveness is not certified until the following year. If the PPP loan is forgiven, or is expected to be forgiven, taxpayers CANNOT deduct the normally deductible expenses that result or expect to result in the forgiveness of the PPP loan. This applies regardless of whether the business uses a fiscal year or the calendar year.

• If the business paid for normally deductible expenses in 2020, applied for and received PPP loan forgiveness based on these expenses in 2020, then the business cannot deduct any of these expenses.

• If the business paid for normally deductible expenses in 2020, applied for PPP loan forgiveness in 2020 based on these expenses but does not receive official certification of forgiveness until the following year, the business still cannot deduct any of these expenses for tax year 2020.

• If the business paid for normally deductible expenses in 2020 and plans to apply for and expects forgiveness the following year, the business cannot deduct any of these expenses for tax year 2020.

Revenue Procedure 2020-51 addresses the deductibility of expenses paid for with a PPP loan when the taxpayer is denied loan forgiveness, or the business decides not to apply for forgiveness.

If the business paid for normally deductible expenses in 2020, applied for and expected to received PPP loan forgiveness but is denied the following year, then the expenses CAN be deducted on any of the following: their 2020 return, an amended 2020 return, OR on their 2021 return (as the denial was received in the 2021 tax year).

Taxpayers to whom this applies must attach a statement to their return titled “Revenue Procedure 2020-51 Statement” containing:

1. The taxpayer’s name, address, and SSN or EIN.

2. A statement specifying whether the taxpayer is an eligible taxpayer under either Section 3.01 or 3.02 of this RP (see link to IRS text above).

3. A statement that the taxpayer is applying section 4.01 or 4.02 of this RP.

4. The amount and date of disbursement of the taxpayer’s covered loan.

5. The total amount of covered loan forgiveness that the taxpayer was denied or decided to no longer seek.

6. The total amount of eligible expenses and non-deducted eligible expenses that are reported on the return.

7. The date the taxpayer was denied or decided to no longer seek forgiveness.

If you have questions or concerns, please reach out to your business’ Bacon & Gendreau tax professional.