IRS Releases PPP Loan Forgiveness Tax Guidance

Cheryle Bernard Coronavirus Alerts, Government Relations Updates, NPA News

November 23, 2020

On November 18, 2020, the Internal Revenue Service issued guidance to clarify that

  • business expenses paid with any portion of PPP loans that have been or may be forgiven by the SBA
    are NOT eligible for ordinary business-expense tax deductions; and
  • PPP loans that are fully or partially forgiven or expected to be forgiven are excluded from gross
    income tax.

These two clarifications follow guidance or other statements made by the SBA and IRS earlier this year. No
change of policy was included.

Revenue Ruling 2020-27 explains that, at the end of the taxable year, if the PPP recipient reasonably expects
some or all of its PPP loan to be forgiven, the recipient may not deduct the amount forgiven as a business
expense. Also, if the PPP recipient intends to apply for forgiveness for some or all of its PPP loan, but will not
have applied by the end of the 2020 taxable year, the recipient should not deduct the forgiveness amount for
which they intend to apply. This Ruling also confirms PPP loans are like grants to the extent they have been or
are expected to be forgiven by the SBA: PPP loans are excluded from taxable income, which makes PPP loan
proceeds different from regular loan proceeds that become taxable when forgiven. IRS Revenue Ruling 2020-
27 can be read in full HERE 

Revenue Procedure 2020-51 provides a safe harbor for PPP recipients whose loan forgiveness is partially or
fully denied or who decided not to apply for forgiveness. These PPP recipients can claim the business-expense
deduction for the expenses incurred. The deduction will be available for the taxable year in which the PPP
recipient decided not to apply for forgiveness. This Procedure document also provides valuable information on
the timing of decisions to seek forgiveness or to deduct expenses if forgiveness is denied partially or fully, or if
the recipient decides not to apply for forgiveness. IRS Revenue Procedure 2020-51 can be read in full HERE

Because the SBA’s processing of forgiveness applications for PPP loans has been slow, Team GRC suggests that
pawnbrokers review with their local lawyer, tax advisor, or accountant the decision to apply for forgiveness,
whether now or later, as well as any response you receive concerning PPP forgiveness from the SBA. Timing of
forgiveness applications and of claimed deductions will be important to discuss.

 

 

This GRC Update is not intended and should not be construed as legal advice to NPA members.

Members should consult their own lawyers for legal advice.
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