The Treasury Department and Internal Revenue Service on November 19 released guidance clarifying the tax treatment of expenses financed by Paycheck Protection Program (PPP) loans that have not been forgiven in the year they were received.
Revenue Ruling 2020-27 specifies that expenses from PPP loan proceeds are not deductible if the taxpayer reasonably believes the loan will be forgiven. This remains the case even if the taxpayer has not yet filed for forgiveness. If, on the other hand, a PPP loan is not forgiven either because forgiveness is denied or not sought, Revenue Procedure 2020-51 states that taxpayers may deduct expenses.
NMHC believes expenses financed through forgiven PPP loans should be fully deductible and has advocated for Congress to address this issue as part of the next round of COVID-19 relief legislation. Of note, Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) issued a release stating they, too, support a fix to this PPP provision: “Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close.”
For more information on this topic, please visit the NMHC Advocacy webpage.
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