Our tax team published a LawFlash on the recently released Internal Revenue Service Revenue Ruling 2020-27 and Revenue Procedure 2020-51, which provide guidance on the deductibility of certain expenses paid or incurred in a taxpayer’s business using loan proceeds from a “covered loan” provided under the CARES Act’s Paycheck Protection Program (PPP).
Under the CARES Act, the principal amount of a covered loan that is used to pay eligible expenses during 2020 may be forgiven to the extent of the eligible expenses, and the amount forgiven is not treated as gross income for the borrower. In the LawFlash, the team describes that very generally, Revenue Ruling 2020-27 confirms that a borrower may not deduct an otherwise deductible expense in its 2020 taxable year if, at the end of the 2020 taxable year, the borrower reasonably expects to be reimbursed for those expenses as a result of forgiveness of a covered loan, even if the borrower has not yet submitted an application for forgiveness of the covered loan.
Revenue Procedure 2020-51 provides safe harbors that allow borrowers to take deductions for certain expenses paid for or incurred with proceeds from a covered loan when it is understood that all or part of the covered loan will not be forgiven. Healthcare industry companies that received CARES Act funding may be interested in reviewing the full LawFlash.
For more information on PPP loan forgiveness and the application for forgiveness, read our previous LawFlash, CARES ACT: Paycheck Protection Program Provides Small Business Loans to Support Employees.