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IRS denies PPP tax deductions

In May, the IRS released Notice 2020-32 announcing that businesses would not be able to deduct otherwise allowable expenses that were paid in connection with a forgiven Payroll Protection Program (PPP) loan. After this notice was released, additional questions remained. Mainly, would businesses be allowed to deduct PPP related expenses on 2020 tax returns if their loan had not been officially forgiven before the year ended. The IRS released additional guidance on November 18 answering this question. In Revenue Ruling 2020-27, the IRS makes clear that when a business pays eligible expenses under the PPP and expects to receive forgiveness of their loan, the expenses will not be deductible on 2020 tax returns (up to the amount of loan principal) under either of the following situations:

  • A PPP forgiveness application was submitted prior to a business’s fiscal year ending in 2020 but the loan was not officially forgiven by the business’s lender before year end.
  • A PPP forgiveness application was not submitted prior to a business’s fiscal year ending in 2020 but the business expects to submit a forgiveness application in 2021 and has met all the requirements needed to receive full or partial forgiveness of their loan.

Please contact Dugan & Lopatka if you have any questions on how this guidance impacts your individual situation.

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