IRS Issues Additional Guidance Regarding Non-Deductibility of PPP Loan Funded Expenses

IRS Issues Additional Guidance Regarding Non-Deductibility of PPP Loan Funded Expenses

In April, the IRS issued Notice 2020-32, providing that taxpayers who received loans through the Payroll Protection Program (‘PPP’) could not deduct expenses that result in forgiveness of the loan under the CARES Act in accordance with IRC Section 265.

On Wednesday, the IRS issued additional guidance which addresses situations where a borrower pays for PPP related expenses in 2020, but whose PPP loan may not be forgiven until 2021.  Revenue Ruling 2020-27 provides that borrowers cannot claim a deduction in 2020 for expenses they will use for PPP loan forgiveness if they “reasonably expect” to receive forgiveness of the loan on the basis of these expenses in 2021, even if they had not yet applied for (or received) forgiveness prior to year-end.

Here is a link to the text of Revenue Ruling 2020-27: https://www.irs.gov/pub/irs-drop/rr-20-27.pdf