PPP Loan Forgiveness Update

Nov 23, 2020 | MMNT Blog

PPP Loan Forgiveness Update

As of November 17, 2020, the IRS released a new Ruling and a new Procedure in regards to Paycheck Protection Program (PPP) loans.

Revenue Ruling 2020-27 provides guidance on PPP participants who have applied for forgiveness for their loans and have not received an indicator of the amount being forgiven.  The ruling, to summarize, states that if the taxpayer has a reasonable expectation for forgiveness, they cannot deduct the expenses in 2020 that the loan forgiveness covers. This also applies to those that haven’t applied for forgiveness at all yet.

What this means is that if you have a PPP loan which the covered period ends before the your Year End, you will need to calculate your forgiveness amount, even if you don’t apply for it by that Year End. Regardless of whether you applied for forgiveness, the expected forgiveness amount will reduce those expenses on their 2020 filing.

Revenue Procedure 2020-51 provides a safe harbor procedure for PPP loan participants whose loan is partially or fully denied (or those forgoing forgiveness). This Procedure states that those denied will have the option to take those expenses in 2021 or have the option of amending their 2020 return to include them. This procedure also states that you can deduct the expenses in 2020 if you forgo forgiveness of the loan.

In conclusion, businesses will need to calculate your forgiveness amount of your PPP loan, regardless of when you plan on submitting the application. This amount will reduce your expenses and can quite possibly increase your taxable income. Any tax planning or estimates will need to take forgiveness amount into consideration.

If you have any questions, please call MMNT at 860-643-1001. Help is only a phone call away.

This blog could become outdated due to tax law updates.

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