PPP Loan Update: Deductibility of Expenses

While many businesses were recipients of loans from the Paycheck Protection Program (PPP), taxpayers have been anxiously awaiting guidance regarding the tax treatment of related expenses.  WellsColeman wanted to provide an update on a recent ruling that provides clarity on expenses paid with PPP funds so that you can appropriately plan for your 2020 taxes.

On November 18, 2020, the US Treasury Department and the Internal Revenue Service (IRS) issued Revenue Ruling 2020-27 (Press Release), which states:

“A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not 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 on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.”

This ruling provides insight that, whether or not you have received or expect to receive forgiveness of your PPP loan, expenses paid from loan proceeds are not deductible in 2020.  This ruling remains in effect unless further legislation is passed which reverses Revenue Ruling 2020-27, such as an additional stimulus bill.

If you have any questions regarding this ruling or more generally on the PPP forgiveness application process, please contact your WellsColeman professional at 804.358.1150.  We are available at your convenience to answer questions or assist in any manner.