In the latest setback in the administration of the Paycheck Protection Program (PPP), the Internal Revenue Service (IRS) announced on November 18, via Revenue Ruling 2020-27, that expenses funded through a Paycheck Protection Program (PPP) loan are not deductible for this tax year if “the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year” (emphasis added). AGC is opposed to this IRS position and will continue to fight for the deductibility of expenses paid for with PPP loan funds.
While the IRS ruled earlier this year (Notice 2020-32) that expenses associated with PPP loan forgiveness, such as wages, rent, utility payments, etc., were not tax deductible, it was assumed that the triggering event that would turn these deductible expenses into nondeductible expenses was being approved for loan forgiveness by the Small Business Administration (SBA). As a result, AGC heard from many accounting and consulting firms who were advising clients to delay applying for loan forgiveness until 2021 so as to maintain deductibility of these expenses while a legislative fix could be worked out in Congress and the Administration. IRS’s ruling this evening calls this strategy into question.
As for the outlook on a legislative solution to this situation, AGC is working with many coalition partners to try and get the PPP deductibility issue remedied before the end of the year. That said, the current outlook for any significant legislation to be passed during the lame duck is not great. We will continue to fight for this to be included in any year end package.
If you have any questions, comments, or concerns, please feel free to reach out to Matthew Turkstra at matthew.turkstra@agc.org, or (202) 547-4733.