Additional IRS Guidance On Business Expenses Funded By Paycheck Protection Program Loans

Earlier this year, the IRS released Notice 2020-32, which clarified that borrowers may not deduct business expenses funded with Paycheck Protection Program (PPP) loan proceeds if (1) the payment of the expenses will result in forgiveness of the PPP loan and (2) the income associated with the forgiveness of the PPP loan proceeds is excluded from gross income. As the end of the year approaches, taxpayers with PPP loans, who may not have applied for or received forgiveness, needed guidance as to whether they may deduct expenses paid with PPP loan proceeds if the loan is not forgiven by year-end. To address this concern and other related issues, on November 18, 2020, the IRS released Rev. Rul. 2020-27 and Rev. Proc. 2020-51. In Rev. Rul. 2020-27, the IRS ruled that a borrower who received a PPP loan may not deduct 2020 expenses funded by the loan proceeds if, at the end of the 2020 tax year, the borrower reasonably expects that the loan will be forgiven. In contrast, Rev.