Yesterday, the IRS released its guidance regarding the tax year for recognizing the deduction offset resulting from any PPP loan forgiveness.
In newly released formal guidance, the IRS position is that taxpayers with a reasonable expectation of PPP loan forgiveness may not deduct expenses paid with those funds, even if the forgiveness has not been granted prior to the end of the taxable year. The IRS states that because taxpayers calculate their forgiveness based on eligible expenses paid with PPP funds, the forgiveness of the loan amounts used for those expenses is reasonably expected to occur, and under IRC §265 taking the deductions would be inappropriate.
Further, the IRS guidance states that taxpayers who do not apply for forgiveness, or whose forgiveness requests are reduced or denied, may take deductions for expenses paid with the amounts that are not forgiven. (Rev. Proc. 2020-51.
As a result, it appears affected clients will be forced to recognize the deduction offset this year and will need to build it into their Q4 estimated tax payments.
Future clarification from the legislature to overturn this ruling may result, but at this time this is the only clear guidance on the issue.
Please reach out to your tax engagement team leader to address your tax projection needs.
Excerpts from Spidell Publishing, Inc.