Posted by Robert Bryant, Esq., CPA on 11.30.20
With all the drama and complexities of 2020, the closing months of the year are at least starting to show some light of clarity and new beginnings. From the announcement of potential lifesaving vaccines to, of all things, new announcements for the deductibility of Payroll Protection Plan funding, taxpayers now can sigh a little relief from a difficult year.
Two new revenue rulings and revenue procedure announcements are giving taxpayers some much needed guidance on how to properly treat Payroll Protection Plan (PPP) funding, and how it’s potential loan forgiveness may affect taxable income. Revenue Ruling 2020-27 states that any PPP funds received are not deductible expenses for the taxpayer who reasonably expects to receive loan forgiveness on those PPP funds. This standard applies to any taxpayer who applied for the loan forgiveness in 2020, or will do so in 2021. Further, this revenue ruling essentially mirrors the previous IRS Notice 2020-32, which indicated the same measures and strongly enforces IRC Section 265(a).
Conversely, Revenue Procedure 2020-51 states that, indeed, a taxpayer may deduct PPP funding if the taxpayer has NO intention to apply for, nor reasonably believe, that they will receive any forgiveness on their PPP funding. In this scenario, the taxpayer is taking affirmative measures to consciously agree to accept the PPP funding as a true ‘loan’, and further acknowledge that they will pay the PPP loan back. As such, the taxpayer will be at financial risk for the loan proceeds and may in fact, treat those amounts as deductible costs on their 2020 tax return filings.
For most taxpayers the big question facing them is simply, “what should I do?”
Invariably the best answer is, “it depends”. Which is not the best answer one wants to hear, but is the honest response. Each taxpayer’s options and alternatives are different, and careful analysis is required. Tax Point Advisors is ready and available to have these detailed and important discussions with you and your CPA at your convenience to work through the options and alternatives that best fit your specific needs and situation.