![]() 27, 2020, to allow greater deductibility of expenses paid with forgiven PPP loan proceeds. In response to the IRS’s guidance, Congress enacted the Consolidated Appropriations Act, 2021 (CAA) on Dec. 5 Later in 2020, the IRS issued Revenue Ruling 2020-27 further explaining that taxpayers cannot deduct expenses paid with PPP loan proceeds if the taxpayer “reasonably expects” forgiveness of the covered loan regardless of the year when forgiveness occurs. ![]() 162 and 163) will be disallowed to the extent PPP loan proceeds are ultimately forgiven. Shortly after enactment of the CARES Act, the Internal Revenue Service (IRS) issued Notice 2020-32 providing that deductions for business expenses otherwise allowable under the Internal Revenue Code (IRC) ( e.g., deductions under IRC Secs. Under the express terms of the CARES Act, forgiven loan amounts are excluded from the borrower’s gross income. 3 Under the PPP, qualifying borrowers can apply to have some (or all) of their loan forgiven to the extent it was used for certain expenses such as rent, utilities, mortgage payments, and employee payroll. The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides forgivable business loans when the recipient meets certain eligibility criteria. 80, deductions for expenses paid using PPP loan proceeds are allowed even when the loan is forgiven provided the taxpayer is not an “ineligible entity.” Under the legislation, an “ineligible entity” is a taxpayer that either: (i) is a publicly-traded company or (ii) does not experience a 25% reduction in gross receipts in an applicable quarter of 2020 as compared to the same quarter in 2019. 80”) providing greater conformity to federal law regarding the deductibility of expenses paid using forgiven Paycheck Protection Program (PPP) loans. Gavin Newsom signed Assembly Bill 80 (“A.B.
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