New PPP Eligible Expense Deductibility Guidance: IRS Revenue Ruling 2020-27
Update: As of December 27, 2020, PPP expenses are now considered tax-deductible.
On November 18, 2020, the IRS released Revenue Ruling 2020-27 providing additional guidance on the deductibility of eligible expenses paid for with Paycheck Protection Program (PPP) funds. This ruling confirmed that PPP expenses are not deductible on borrowers’ 2020 tax returns if the borrower has or plans to apply for forgiveness and has reasonable expectation forgiveness will be granted.
The IRS maintains that because PPP loans are, in spirit, reimbursement of costs and meant to be completely forgiven, borrowers cannot deduct the eligible expenses. If a borrower plans not to apply for loan forgiveness, the eligible expenses are deductible under the current guidance.
A related Revenue Procedure (Rev Proc 2020-51) provides that if eligible expenses are not deducted on a borrower’s 2020 tax return and forgiveness is later reduced or not granted, the borrower may either amend the 2020 tax return or deduct the expenses in the subsequent tax year when the forgiveness amount is determined.
IRS Revenue Ruling 2020-27 Impact on Borrowers
Borrowers with a reasonable expectation of forgiveness should not deduct the expenses utilized or expected to be utilized in their forgiveness request up to the amount of their PPP loan on the tax return(s) that includes their covered period. For most taxpayers, this will be their 2020 calendar year tax filing and applies whether or not a forgiveness application has been filed. In the event forgiveness is not granted in full, the deductibility of the expenses can be restored on an amended or a subsequent tax return.
Not addressed by the guidance is whether certain tax credits or deductions tied to wages might be impacted by the Service’s position that wages are reduced to the extent they are utilized for forgiveness.
The Treasury’s position remains unpopular with Congress. In a joint statement issued November 19, Senate Finance Committee members Chuck Grassley and Ron Wyden urged Treasury to reconsider and confirmed that they are working to include language clarifying Congressional intent in future legislation.
Aldrich is Here to Support You
The PPP rules and regulations are constantly evolving with new guidance from the IRS. The entire Aldrich team is monitoring the SBA, IRS, and Department of Treasury for further direction. We’ll be updating both our PPP Resources Page and PPP FAQ to help you stay apprised of the changes.
With so much to keep track of, we recommend reaching out to your Aldrich Advisor to discuss a PPP loan strategy and year-end tax planning.
Meet the Author
Carrie Sowders, CPA
Aldrich CPAs + Advisors LLP
Carrie leads our Manufacturing group at Aldrich and specializes in serving large and middle market companies, primarily in the consumer and industrial products sectors. Carrie has exclusively practiced in tax since beginning her career in 1998. Prior to joining Aldrich in 2009, Carrie spent a decade with Deloitte and oversaw the tax function of a... Read more Carrie Sowders, CPA
- Certified Public Accountant
- Manufacturing tax
- Consumer business
- Multinational corporate issues
- Tax accounting and methods