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ppp loans

Level 2

My client received a PPP loan on July 29, 2020.  All of the funds were spent on payroll.  They have not yet begun the forgiveness process.  Can the company deduct the payroll expenses in 2020 if the forgiveness process does not take place 2021?  If the loan is forgiven in 2021 then the proceeds would be income.  Is my thinking correct?

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Level 2

I don't think so.  The IRS issued Revenue Ruling 2020-27 which reinforces their position that expenses cannot be used for forgiveness and taken as a tax deduction.  Specifically they sate that if you have a reasonable expectation that your loan will be forgiven in 2021 then you  may not deduct the expenses in 2020.

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Level 2

I don't think so.  The IRS issued Revenue Ruling 2020-27 which reinforces their position that expenses cannot be used for forgiveness and taken as a tax deduction.  Specifically they sate that if you have a reasonable expectation that your loan will be forgiven in 2021 then you  may not deduct the expenses in 2020.

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Level 15

@maddspunky wrote:

I don't think so.  The IRS issued Revenue Ruling 2020-27 which reinforces their position that expenses cannot be used for forgiveness and taken as a tax deduction.  Specifically they sate that if you have a reasonable expectation that your loan will be forgiven in 2021 then you  may not deduct the expenses in 2020.


Except Senate Finance Committee leadership doesn't quite agree.  See this discussion for more details.

https://proconnect.intuit.com/community/tax-talk/discussion/re-ppp-no-deduction-for-forgivable-expen...

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Still an AllStar
Level 2

Thanks for that info. It definitely makes providing guidance to clients difficult.

Level 15

The only certainty is that there is still uncertainty, lol.  Oh, and watch out for the Intuit Krampus and IRS Kraken.

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Still an AllStar
Level 2

Thank you.  It seemed reasonable position, but reasonable is subjective.

Level 13

To me, it is fairly clear the IRS guidance is correct according to how the law was written.

If the Senate Finance Committee wants to criticize somebody, they need to criticize themselves (and the rest of Congress) for allowing the law to be passed as written AND for not passing a subsequent law to clarify/correct things.  But the fact that they are blaming the IRS/Treasury for something that is their fault, shows how clueless they are, so I'm not holding my breath for them to change things anytime soon.

Level 15

That's exactly the point. If they want it their way, it's only reasonable that they pass the bipartisan Small Business Expense Perfection Act.  But the timing of this may not be ideal as it could be like one of those late extenders.

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Still an AllStar
Level 15

Congress was upset in May after IRS issued Notice 2020-32. "that's not what we intended"

House and Senate each had bills in May 2020 saying the expenses are deductible. It's November 2020 now. I am not holding my breath.


ex-AllStar
Level 11

I'll point out that Grassley was the one pushing for extenders which only took two years to pass . . . retroactively.  So we may not see an end to this PPP mess until 2022.  But hey, we can amend electronically now, right?

Level 11

This is from the weekly Politico tax newsletter, free to anyone who requests.  Their daily report has a subscription fee. Congress could attach the clarification to the budget bill that has to be passed by December 11, but the risk of a government shutdown is more likely over some dispute involving VA funding.  

"THE PPP SCENE: It probably shouldn’t have surprised anyone that Treasury Secretary Steven Mnuchin and the IRS just doubled down on their earlier finding that companies who received forgiven loans through the Paycheck Protection Program can’t write off normal business deductions paid for by those loans.

But the timing is interesting, right? President-elect Joe Biden is set to take office in less than two months, and the prevailing view among lawmakers is that Congress intended to allow the double-dipping on the PPP loans and the normal business deductions.

So is there a chance that a Biden administration could reverse Mnuchin on this? Or that Congress will throw its weight around to make it clear that businesses can have both? Let’s check this out from several different perspectives.

The IRS: It might sound odd, but on some level this is a pretty easy call for the tax collector. In short: If a company gets loans that they don’t have to pay back to the government, then they shouldn’t also get to deduct expenses paid for with that money.

With that in mind, Philip Hackney, a former lawyer in the IRS Chief Counsel’s office, said that — mechanically speaking — it wouldn’t be that hard for a new administration to revamp the revenue ruling just issued by Treasury and the IRS.

That said: “My guess is from a substantive position, though, the IRS would be hard pushed to change. This is because it is a pretty straightforward position for the IRS,” wrote Hackney, now a law professor at the University of Pittsburgh, in an email.

Which means that the best way for the IRS to change its mind is for Congress to give it no choice. Sen. John Cornyn (R-Texas) has sponsored a bill, S. 3612 (116), clarifying that businesses should still get normal business deductions even if they get forgiven PPP loans, along with a group of some three dozen bipartisan cosponsors.

Top tax writers have said they’re working to get that clarification into any year-end vehicle they can find. But given how this lame-duck session has kicked off, it’s no sure thing that an agreement like that is waiting to happen — and, so far at least, there’s no real momentum behind the legislation."