PPP Loan Forgiveness

The latest updates on PPP forgiveness are not good news.
Yes, this money that you received, can be forgiven or it becomes a short-term loan at a great interest rate. However, there is this new ruling that states (IRS Revenue ruling 20-27):

“In newly released formal guidance, the IRS has confirmed that taxpayers with a reasonable expectation of PPP loan forgiveness may not deduct expenses paid with those funds, even if the forgiveness has not been granted prior to the end of the taxable year. (Rev. Rul. 2020-27) In the guidance released 11-18-20, the IRS states that because taxpayers calculate their forgiveness based on eligible expenses paid with PPP funds, the forgiveness of the loan amounts used for those expenses is reasonably expected to occur, and under IRC §265 taking the deductions would be inappropriate.”

What this means is your income will be higher and your loss will be lower by the amount of forgiveness.

“If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, we encourage businesses to file for forgiveness as soon as possible.
In the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses.”

Moving forward:
If you only received the EIDL grant (up to 10000.00 initially) that would be considered a grant with grant rules. However, if you got the PPP as well, you will not be able to exclude that grant from your income.

The maximum self-employed income is capped at 28800.00 for the period. You will need to figure out what your other expenses were for the forgiveness application.

We need to make sure that we have all of our documentation to support our forgiveness applications. We tax professionals are sitting here with bated breath waiting for them to fix this, but we now are all scratching our heads wondering what more can the government do to us.

I for one will do my best to help my clients with these issues. Please stay tuned as I get changes and updates, you know I will keep you all in the loop.

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