General Inquiries

Rev Procedure 2020-51 and Rev Ruling 2020-27 and

  • 1.  Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 12 days ago
    It appears the strategy of leaving the PPP loan on the books as a loan at 12/31/2020, with the expectation Congress will address the deductibility of the payroll in 2021, is not going to help 2020 taxes.

    Thoughts?

    Thank you.

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
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  • 2.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 10 days ago

    Unfortunately yes, that is our understanding of the new ruling as well. If you have a reasonable expectation of receiving forgiveness, the associated expenses are non-deductible in the year incurred (2020). At this time, an act of Congress is the only thing that will change this.  

     

    Below is a blog post we put together that goes into more detail on the matter:

     

    https://www.ksmcpa.com/blog/ppp-expenses-not-deductible-if-reasonable-expectation-of-forgiveness-exists-regardless-of-loan-forgiveness-timing

     

     

    Corey McSweeney, CPA, CCIFP
    Manager
    Katz, Sapper & Miller

      

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    260.710.8588

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    260.348.8457

    260.710.8598

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    cmcsweeney@ksmcpa.com

    Upload files here

    202 West Berry Street, Suite 600
    Fort Wayne, IN 46802
    ksmcpa.com

     






  • 3.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 10 days ago
    It's my understanding forgiven debt is not recognized as income until actual forgiveness occurs. If the debit is not forgiven as of 12/31/20 why wouldn't you leave it as a liability and deduct all expenses in 2020? Under current law expenses don't become non-deductible until forgiveness occurs.

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    Ron Pitts CPA
    Chief Financial Officer
    Baldwin & Shell Construction Company
    Little Rock AR
    (501) 374-8677
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  • 4.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 8 days ago
    Ron,
    To me, Revenue Ruling 2020-27 Effectively eliminates that possibility.
    My understanding of the new Rev Ruling is the only ways the payroll and expense that would be used for the PPP forgiveness are deductible in 2020:
    1.  You will not seek PPP loan forgiveness
    2.  You have no reason to believe your PPP loan will be forgiven
    3.  You have been notified your PPP loan will not qualify for forgiveness

    I read the ruling, and spun through the conversation in my head that one would have with the IRS...where a company deducts the expenses in 2020 AND applies for PPP Forgiveness.
    I thought that would be a conversation I do not wish to have.

    If you have submitted for PPP Forgiveness, or will submit for PPP forgiveness, that seems to me to imply you believe you are entitled to forgiveness, so you have a reasonable expectation of PPP Loan forgiveness.  In that case, per the Rev Ruling, the wages and expenses you use, or intend to use for that forgiveness are not deductible on your 2020 return.

    The two scenarios given by the IRS appear to me to indicate the above.
    I am not a tax attorney.  That is just my reading of the Rev Ruling.   I would love to hear other opinions.

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
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  • 5.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 8 days ago
    Edited by Brad Werner 8 days ago
    Ron,

    While the forgiven debt is not taxable, the underlying expenses are not deductible (effectively the same outcome). Since the expenses were incurred in 2020, for substantially all PPP loan recipients, that means the payroll, utilities, rent, etc. that were paid will be an add back in calculating taxable income for 2020. The timing of forgiveness or the application thereof, is irrelevant. At this point, most clients I've talked to have a pretty clear idea if they spent the funds appropriately and thus can reasonably conclude that the loan will be forgiven (i.e. they spent it on eligible expenses and likely have a loan that met the safe harbor for necessity <$2 million).

    As always, this could be subject to change if Congress fixes the technical glitch before the tax deadline.

    Here's the press release from Treasury for reference: https://home.treasury.gov/news/press-releases/sm1187

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    Brad Werner
    Partner
    Wipfli LLP
    Aurora IL
    (312) 216-1783
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  • 6.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 9 days ago
    That is the same conclusion our attorney and CPA came to as well.

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    Catherine Seales
    Sr. Accounting Manager
    Mann Wireless, Ltd.
    Ballston Spa NY
    (518) 587-2305
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  • 7.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 8 days ago
    Our CPA has said the same thing, non-deductible in 2020/income in 2021. So if the forgiveness amount ends up being different from amount used to calculate non-deductible expenses do you fix it in 2021 or have to file an amended return for 2020?

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    Ron Pitts CPA
    Chief Financial Officer
    Baldwin & Shell Construction Company
    Little Rock AR
    (501) 374-8677
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  • 8.  RE: Rev Procedure 2020-51 and Rev Ruling 2020-27 and

    Posted 7 days ago
    Ron.

    My reading of Revenue Procedure 2020-51 (the other IRS pronouncement) is the answer is an "or".
    To me, that means you can fix it in 2021, or file an amended return for 2020 if you have filed by the time you are notified.

    Again,   I am not a tax attorney.  I am interested in other's opinions.

    thank you,
    Joe Harper

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
    ------------------------------