The Internal Revenue Service has issued guidance on the tax treatment of expenses used in the application for forgiveness of Paycheck Protection Program (PPP) loans.

The IRS had previously issued a statement that any expenses that were used in qualifying for PPP forgiveness would not be deductible, leaving several questions as to how this ruling would be applied. On November 18, 2020, Revenue Rule 2020-27 and Revenue Procedure 2020-51 were issued, clarifying the IRS position. The pronouncements specify that if the PPP loan is expected to be forgiven, the expenses used to obtain the forgiveness are not deductible in the period the expenses were paid or accrued, even if the borrower has not applied for loan forgiveness. Additionally, the pronouncements lay out paths to deduct those expenses if the ultimate loan forgiveness amount is less than expected.

As a reminder, there is legislation still pending in Congress that, if passed, could potentially nullify the IRS position. While neither the House nor the Senate have voted on any measures as of yet, the intent of the bill is to clarify and amend the original PPP legislation and allow deduction of the related expenses.

If you have any questions regarding this new guidance, or need assistance in applying for loan forgiveness, we are available to assist.