November 2020
As year-end tax reporting season approaches, many business owners who obtained relief under the Paycheck Protection Program (PPP) this year need to understand the rules for deducting expenses paid with PPP funds if they plan to seek loan forgiveness either this year or in the future.
Back in May, the IRS issued Notice 2020-32 which stated “no deduction would be allowed for an eligible expense that is otherwise deductible if the payment of the eligible expense results in forgiveness of the covered loan.” This triggered confusion among PPP borrowers, so in November, the IRS issued Revenue Ruling 2020-27 which indicates that because businesses aren't taxed on the proceeds of a forgiven PPP loan, PPP expenses are not deductible if used to obtain PPP loan forgiveness.
The guidance was issued for calendar-year filing, but it does not address fiscal-year filing. It also does not address how to allocate nondeductible expenses among the various expenses used for the loan forgiveness application.
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