November 20, 2020

Paycheck Protection Program Forgiveness

Dear Clients and Friends,

On November 18, 2020, the IRS released additional guidance on forgiveness of Paycheck Protection Program (PPP) loans.

Previously released Notice 2020-32 stated that expenses related to forgivable loans are ineligible for tax deductions.  The Revenue Ruling 2020-27 which came out yesterday amplifies this notice. It states that if a taxpayer has a reasonable expectation of PPP forgiveness, then expenses are not tax deductible in 2020. This is even if the taxpayer has not submitted an application for forgiveness in 2020.

We still believe that there will be legislative action to make the PPP expenses deductible (whole or in part). Unfortunately, this is still uncertain and even if we do receive additional guidance, the timing is unknown. So, we need to be prepared in our year end tax projections both ways: 1) with the PPP expenses as non-deductible and 2) with the PPP expenses as tax deductible.

We will need to present this comparison during our year end tax planning strategies.  As it relates to tax payments and potential underpayment penalties for the related PPP income, we have a fourth quarter payment still due for calendar year taxpayers, and then a payment due with the filing of the returns to discuss timing of payments. We will discuss this further with you, as well.

We will also advise our clients of the possibility of extensions, if we do not receive additional guidance or legislation by the March 15th or April 15th income tax filing deadlines.  We will be addressing this matter around February/March timeline.

Given the likelihood of additional guidance on automatic forgiveness provisions, we are recommending to delay submitting the applications. This will be on a client case-by-case basis, and we will discuss this further with you.

We will continue to monitor issues related to the PPP Forgiveness guidance. We will share this information with you as we receive it. Please call our office if you have any questions.