A recent IRS ruling (Rev Ruling 2020-27 ) specifies the circumstances of when PPP-funded expenses cannot be deducted. A taxpayer that received a covered loan guaranteed under the PPP and who paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period. This rule applies even if the taxpayer has not submitted an application for forgiveness by the end of such taxable year.
This ruling affects many small business owners who received a forgivable PPP loan in 2020. However, there is still the possibility that Congress will pass legislation that will allow for the eligible expenses to be deductible for certain thresholds. For individual advice regarding your PPP loan, contact a ShindelRock tax professional .