AT A GLANCE
- New IRS guidance creates a safe harbor for PPP loan participants whose loan forgiveness has been partially or fully denied or who decide against applying for loan forgiveness.
- The safe harbor permits these participants to claim a deduction for certain otherwise deductible eligible payments on their tax return.
- Additional guidance provides that businesses cannot claim tax deductions for business expenses if the business reasonably expects their PPP loan to be forgiven.
Safe Harbor for Certain PPP Borrowers
In Rev. Proc. 2020-51, the IRS announced a safe harbor for PPP borrowers whose loan forgiveness has been partially or fully denied and who want to claim deductions for otherwise eligible payments on their tax return. Under the safe harbor, a barrower may be able to deduct some or all of the eligible expenses if the borrower’s request for loan forgiveness is partially or fully denied or the borrower decides to never request loan forgiveness and the borrower meets the other requirements set forth in the revenue procedure.
Tax Deductions for Business Expenses
Additionally, the IRS released Revenue Ruling 2020-27 to address whether a business can claim tax deductions for business expenses covered by a PPP loan, if the business has not yet had their PPP loan forgiven, but reasonably expects it will be forgiven in the future. Under the ruling, if the PPP borrower has a “reasonable expectation” that the PPP loan will be forgiven, the deduction is not allowed.
Borrowers are encouraged to consult with their tax advisor regarding the new guidance in order to determine their eligibility for any credits applicable to their income tax filings.
Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.