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New Ruling on Deductibility of PPP Loan Related Expenses

With Revenue Ruling 2020-27 issued earlier this week, the Department of the Treasury provided further guidance on possible forgiveness of PPP loans issued earlier this year.

This ruling states that if a taxpayer pays approved expenses covered by the PPP loan over the course of the 2020 tax year (payroll, mortgage interest, utilities, and rent) and reasonably expects to receive loan forgiveness for these qualified expenses, taking deductions for these covered expenses is impermissible.

One key nuance of this ruling is that if, at the end of that tax year, the taxpayer has not received a determination of forgiveness of the loan or not yet applied for forgiveness, the expenses are not deductible if the taxpayer reasonably expects to receive loan forgiveness.  A reasonable expectation of loan forgiveness is determined without regard to when the application of loan forgiveness was submitted (prior to or after December 31, 2020).

If the taxpayer is not expecting the PPP loan to be forgiven, then the expenses may be deductible.

Please contact our office if you have questions about PPP loan forgiveness.

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