The IRS has released new guidance on various aspects of PPP loan forgiveness. Below are summaries of the key provisions.
Revenue Procedure 2020-51 provides a safe harbor for certain Paycheck Protection Program loan participants, whose loan forgiveness has been partially or fully denied, or who decide to forego requesting loan forgiveness, to claim a deduction for certain otherwise deductible eligible payments on (1) the taxpayer’s timely filed, including extensions, original income tax return or information return, as applicable, for the 2020 taxable year, or (2) an amended return or an administrative adjustment request under section 6227 of the Internal Revenue Code for the 2020 taxable year, as applicable. For taxpayers that decide to forego requesting loan forgiveness, the safe harbor also allows these taxpayer to claim a deduction for the otherwise deductible eligible payments on an original income tax return or information return, as applicable, for the taxable year in which the taxpayer decides to forego requesting forgiveness.
Revenue Ruling 2020-27 provides guidance on whether a PPP loan participant that paid or incurred certain otherwise deductible expenses can deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan. The revenue ruling also provides guidance if, as of the end of the 2020 taxable year, the PPP loan participant has not applied for forgiveness, but intends to apply in the next taxable year.
Is this confusing? Yes. As Forbes notes, “Like most PPP guidance, the new clarification creates more questions.”
The Bottom Line: Always consult a tax and/or legal professional for your specific situation.
Posted November 2020 – Copyright 2020
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