New Rule on PPP Loan Forgiveness Deductions

I have written extensively on the concept that if your PPP Loan was forgiven, the expenses involved in forgiveness cannot be deducted on your income tax return. If you received a $100,000 loan, and received full forgiveness, the $100,000 in expenses used to forgive the loan cannot be deducted on your return at the end of the year.

Further, I have mentioned from a tax planning perspective that in many instances, it would be better to push this off into 2021. If you have to pay an income tax bill, given the time value of money, it’s obviously better to do it later rather than sooner.

This has now changed. The IRS issued Revenue Ruling 2020-27 Wednesday night which addresses this timing issue. It provides a decision for two different sets of facts and circumstances.

First is if an entity received a loan in 2020, put in for forgiveness in 2020, has reasonable expectation of receiving forgiveness, but does not receive forgiveness until 2021. The second is if an entity received a PPP Loan, has a reasonable expectation for forgiveness, but did not apply for forgiveness in 2020. In both circumstances the entity knows the amount it expects to be forgiven.

The IRS has ruled that in both instances, the entity cannot deduct the expenses involved in forgiveness in 2020. The entity must pay the increased income tax in 2020 rather than in the following year. This throws the concept of tax planning in reference to these forgiveness issues out the window.

From a strict tax law standpoint, what they have done is logical in a twisted sense. Long term liability bank notes are handled on an accrual basis whether you are a cash or accrual basis taxpayer. The service is just affirming the accrual basis handling of the forgiveness side of these loans.

Let me leave you with this.

We received news that Pfizer is applying for emergency use with the FDA on its C-19 vaccine. What we may be seeing is the beginning of the end.

I’ve been reading extensively on this. Pfizer has a plant in Kalamazoo, Michigan that is pumping out 20 million doses of their vaccine monthly for the US market. The vaccine requires two vaccinations three weeks apart.

The vaccine is a logistical nightmare. It must be kept at a negative 96 degrees Fahrenheit to remain viable. Pfizer has ordered 100,000 cold boxes that can transport 50,000 doses per box. Fedex and UPS will be handling the shipping. Once it is transported to the thousands of hospitals, clinics, and pharmacies necessary to handle the millions of vaccinations, how many of those facilities have the facilities necessary to keep anything at that temperature?

The cold boxes can only be opened twice every 24 hours for the vaccine to remain viable. Think about it. You are given an appointment to be at the hospital at 1:00 pm. Something comes up so you can’t make it. They open the box at 12;30 pm to get out your dose, and can’t put it back in once it reaches room temperature. They get pissed because you wasted your dose.

Think about how difficult it would then be to get another appointment.

The good news is that 20 million doses monthly means that 10 million Americans can be vaccinated every month. They are supposed to start with the healthcare workers, move on to the higher risk people in the nursing homes, then on to the first responders, etc.

The point is that the end now seems in sight. Illinois is supposed to get the first doses of this vaccine before the end of the year. Don’t lose hope. Keep the faith. This isn’t going to last forever. Hopefully by the end of next tax season, we’ll be through the worst of this.

Hang in there. We’re going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. If there is anything you need, whether you are a current client or not, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.

CONFIDENTIALITY NOTICE AND LEGAL DISCLAIMER. The information contained in this email message, including any attachments, is legally privileged and confidential and intended only for the addressee(s). If you are not the intended recipient, you are hereby notified that any reading, use, or dissemination of this message is strictly prohibited. If you have received this message in error, please notify us immediately and delete this message from your system.

Although this email and any attachments are believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure it is virus free. Accounting Solutions Ltd. accepts no responsibility for any loss or damage arising from receipt and use of this email.

Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.