In the past few days, the IRS and SBA have issued additional guidance. Here are some of the highlights:
- REVENUE RULING 2020-27: This IRS ruling amplifies IRS Notice 2020-32 and reiterates that taxpayers that received a PPP loan and that paid or incurred certain otherwise deductible expenses cannot deduct those expenses in the tax year paid or incurred if, at the end of that tax year, the taxpayer reasonably expects to receive forgiveness of the covered loan based on the otherwise deductible expenses. This Rev Ruling further clarifies that delaying the filing of the application for forgiveness is not relevant.
- REVENUE PROCEDURE 2020-51: This provides a safe harbor for PPP borrowers that have their loan forgiveness denied, in whole or part, or who choose not to request loan forgiveness.
- Issues not addressed:
- Issues of tax basis for s-corporations and partnerships when non-deductible expenses are incurred in 2020 and forgiveness occurs in 2021 or later.
- Timing for estimated tax payments because of the non-deductibility of the expenses applied toward forgiveness.
- The order in which the expenses are applied towards forgiveness.
- The effects on the qualified business income deduction.
- The effects on the R&D credit.
- The effects on the interest deduction limitation.
- Guidance for fiscal year taxpayers whose covered period crosses two fiscal years.
- Illinois has been silent on any PPP ramifications.
- The SBA issued Form 3509-Loan Necessity Questionnaire: (for-profit borrowers) which applies to borrowers who received $2 million or more in PPP loans. This is a nine-page form developed by the SBA to evaluate a borrower’s need for a PPP loan. There are certifications required with the form. Not-for-profit entities are covered under form 3510.
- At this point it may be prudent to pay an estimated tax payment. You should discuss this with your DHJJ professional.
- The American Institute of CPAs is still of the opinion denying deductions of expenses forgiven under the PPP is contrary to Congressional intent and has continually advocated for legislation that would clarify that the receipt and forgiveness of assistance does not affect the deductibility of otherwise ordinary business expenses. Specifically, the AICPA supports the passage of S. 3612 and of H.R. 6821, Small Expense Protection Act of 2020, or of H.R. 6754, Protecting the Paycheck Protection Program Act of 2020.
- The AICPA and other business organizations have registered their concerns regarding the Necessity form and its approach to the issue. Approximately 30,000 businesses received $2 million or more in loans.
Finally, for any questions please reach out to your DHJJ professional.