IRS Issues Guidance for Tax Treatment of PPP Loans

The IRS recently issued guidance relating to the tax treatment of Paycheck Protection Program (PPP) loan forgiveness.

Revenue Ruling Addresses Deductibility of PPP-funded Expenses:  In a recent revenue ruling, the IRS presented two situations in which a taxpayer used funds from a PPP loan to pay eligible expenses. In the first situation, the taxpayer applied for forgiveness of the loan in November 2020, but did not receive a decision from the lender before the end of 2020. In the second situation, the taxpayer did not apply for forgiveness of the loan before the end of 2020, but expects to in 2021. Both taxpayers satisfied all requirements under the CARES Act for forgiveness of the loans. The IRS ruled that a PPP loan recipient that paid or incurred certain otherwise deductible expenses may not deduct those expenses in the tax year in which they were paid or incurred if, at the end of such tax year, the taxpayer reasonably expects to receive forgiveness of the covered loans, even if the taxpayer has not submitted an application for forgiveness of the loan by the end of such tax year.

Safe Harbor for Certain PPP Loan Participants:  The IRS has issued a safe harbor allowing a taxpayer to claim a deduction in 2020 for certain otherwise deductible eligible expenses if (1) the expenses are paid or incurred during the taxpayer’s 2020 tax year; (2) the taxpayer receives a Paycheck Protection Program (PPP) loan, which the taxpayer expects to be forgiven in a tax year after 2020; and (3) in a subsequent tax year, the taxpayer’s request for forgiveness of the loan is denied, in whole or in part, or the taxpayer decides never to request forgiveness of the loan. Some or all of the eligible expenses may be deducted on (1) the taxpayer’s timely-filed (including extensions) return for 2020; (2) an amended return or an Administrative Adjustment Request (AAR) for 2020; or (3) the taxpayer’s timely-filed (including extensions) return for the subsequent tax year.



Caroprese & Company is a certified public accounting firm that provides innovative and strategic services to a diverse client base of individuals, families, small and medium size businesses, government entities, non-profits and multi-national corporations. Our dynamic professionals perform at a high intensity and are laser focused on providing excellence to our global clientele.



This publication is provided by Caroprese & Company as a service to its clients and colleagues.  The information and content included in this publication should not be construed as technical advice.  Questions regarding any matters discussed in this publication should be directed to Brandon Caroprese whose contact information is listed below:

Brandon Caroprese, CPA, MST
Tel. (973)-475-8090

Share this article:

The Information contained in the Caroprese & Company (“Caroprese”) website is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in Information contained in the Caroprese website. Accordingly, the Information on the Caroprese website is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors. Before making any decision or taking any action, you should consult a Caroprese professional.