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Rev. Rul. 2020-27: No deduction of eligible expenses for 2020 if reasonable expectation of PPP loan forgiveness

Rev. Rul. 2020-27

The IRS last evening released an advance version of Rev. Rul. 2020-27 providing that a taxpayer computing taxable income on the basis of a calendar tax year may not deduct eligible expenses in its 2020 tax year if, at the end of the 2020 tax year, the taxpayer has a reasonable expectation of reimbursement for such expenses in the form of Paycheck Protection Program (PPP) loan forgiveness.

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Read Rev. Rul. 2020-27 [PDF 90 KB]

Rev. Rul. 2020-27 addresses factual situations of taxpayers that received a loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses, when, at the end of that tax year, the taxpayer reasonably expects to receive forgiveness of the covered PPP loan based on the otherwise deductible expenses.

The IRS ruled that a taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the tax year in which the expenses were paid or incurred if, at the end of that tax 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, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of that tax year.

Rev. Rul. 2020-27 amplifies Notice 2020-32 [PDF 30 KB] which provided no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to provisions of the CARES Act and the income associated with the forgiveness is excluded from gross income under the CARES Act.

The purpose of this report is to provide text of the revenue ruling.

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