PPP Loan Forgiveness

PPP Loan Forgiveness

   Application, Timing, and Deductibility of Expenses

The SBA has slowly started to approve PPP Loan Forgiveness applications after political pressure. We have seen multiple clients receive their SBA forgiveness decision. Whether a PPP loan participant can apply for forgiveness as of today, really depends on the bank or financial institution who processed the loan. Some banks have online portals for submitting forgiveness applications and required documentation, while some banks are only accepting paper applications and documentation. Some banks have only opened the forgiveness window to clients with larger PPP loan balances, while some banks have opened the forgiveness window to any loan participant. Unfortunately, we are still hearing of some banks not ready to accept forgiveness applications yet. If in doubt, please contact your bank to find out.

In May the IRS issued Notice 2020-32, stating that a taxpayer that receives a loan through the PPP loan program is not permitted to deduct expenses that are normally deductible, to the extent that those expenses result in loan forgiveness under the CARES Act.  The IRS further enhanced that position last week by issuing Revenue Rule 2020-27, which states that a taxpayer is not allowed a deduction on their 2020 tax return for expenses paid for with PPP loan proceeds, whether or not the taxpayer has applied for or has received forgiveness by December 31, 2020, as long as the taxpayer has disbursed the loan proceeds in a manner that meets the SBA forgiveness criteria, and does expect to receive forgiveness in the future. The IRS also issued Rev. Proc 2020-51, which provides safe harbor elections for those taxpayers that do not expect to receive full forgiveness and allows current year and future deductions for non-forgiven expenses.

Based on the recent IRS guidance, it no longer matters when a taxpayer decides to apply for PPP loan forgiveness as it relates to deductibility of expenses on the 2020 tax return. Keep in mind that a taxpayer has 10 months from the end of their covered period to apply for forgiveness before repayments begin.

If you would like our office to complete your PPP loan forgiveness application or have questions about the process, please contact us by phone or email.

Derek Loucks, CPA