As the end of 2020 looms large and year-end tax planning is in full swing, businesses and organizations in virtually every industry have been struggling with unanswered questions about PPP loans – loan forgiveness, deductibility of related expenses, timing of loan forgiveness applications, and the impact on taxable income for 2020 and 2021. These and other questions have resulted in high levels of uncertainty, heightened anxiety, and sleepless nights for many.
New Answers from the IRS
On November 18th, 2020 the IRS issued Revenue Ruling 2020-27, providing clear guidance and examples regarding the deductibility of expenses paid using PPP loan funds – charting the way ahead and providing welcome insight.
Revenue Ruling 2020-27 states that a taxpayer who receives a PPP loan and reasonably expects that loan to be forgiven must disallow the expenses paid by that loan in 2020. Effectively, this will increase taxable income for the 2020 tax year.
Expenses Not Tax-Deductible
An important note is that the IRS specified that these expenses are not deductible regardless of whether the taxpayer has applied for loan forgiveness by the end of their taxable year.
There are no references to the Certification of Need and what effect, if any, that might have on whether the taxpayer reasonably expects to receive forgiveness.
Some Questions Remain – and How to Plan
While several tax practitioners believe this result was not congressional intent, this is currently the guidance we have to chart the course ahead. We will remain on the alert for additional guidance from Congress or the IRS, and share updates and insights as new information becomes available. Unless and until that guidance is issued, it’s vital that taxpayers consider the impact of this ruling on financials during year-end planning.
Cover the Bases
As you go through year-end tax planning with the IRS’s new guidance in mind, it’s critical to understand the big picture, the potential impacts to your business, and what strategies you can put in play to ensure the best possible financial position. If you have questions, consult with one of our tax professionals and ensure you’re set up for success. Contact us to set up a conversation. We’re here to help.