The simple answer is, we’re not sure yet. This week, the IRS issued Revenue Ruling 2020-27 which provides additional guidance on the non-deductibility of expenses paid with PPP loan proceeds for tax purposes.
The IRS has clarified the amounts paid in 2020 will be nondeductible in 2020, even if the taxpayer has not yet filed for loan forgiveness before filing the tax return, but expects the loan amount to be eventually forgiven. The position taken by IRS contradicts the legislative intent of the PPP loan passed by Congress to be a tax-free stimulus for small businesses and effectively makes the forgiven loan proceeds taxable in 2020.
A legislative fix has been promised by Congress but so far has not materialized. We will continue to monitor this evolving and complex tax situation and keep you informed. If you have any questions about PPP Loan Expenses, please reach out to your HW&Co. tax advisor.