IRS Revenue Ruling 2020-27

The IRS recently issued a revenue ruling to clarify an issue that was not addressed in Payment Protection Program (“PPP”) legislation: whether PPP loans used for expenses that are eventually forgiven can be tax deductible. It seems Congressional intent was to allow for deductions of usual business expenses, even if PPP loans were used to pay for those expenses, as Congress passed PPP loan legislation through the CARES and HEROES Acts to boost small businesses during this challenging health and economic time.

However, the IRS ruling on this issue stated that forgiven PPP loan expenses are not tax deductible, essentially forcing small businesses to choose between filing to have their loans forgiven or including these routine business expenses on their tax returns as tax deductible.

Since the IRS revenue ruling just this week, Congress has already voiced its concern. Senate Finance Chairman Chuck Grassley of Iowa stated: “Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close.” While there is no legislation currently on this issue, Senator Grassley and Senator Ron Wyden have expressed their desire to include legislation on tax deduction for PPP loan expenses in budget talks prior to the December 11 budget deadline. Senator Grassley believes that PPP loans used for routine business expenses should be allowed to be tax deductible while still be allowed to be forgiven.

This promotes Congress’ intent to help small businesses still suffering during the pandemic and amid economic uncertainty, and it provides relief for small businesses both in the form of forgiven PPP loans if those loans were used for rent or mortgage, utilities, or payroll and in the form of normally allowed business expense tax deductions.

Right now, small businesses are faced with a difficult choice. Congress likely has until December 11^th, the budget deadline for federal spending, to implement new relief and to address this issue.

Contact your representative to encourage their support for addressing this vital business issue:

Iowa: Senator Chuck Grassley: (202) 224-3744 or (712) 233-1860

Senator Joni Ernst: (202) 224-3254 or (712) 252-1550        

Or your local House representative

Nebraska: Senator Ben Sasse: 202-224-4224 or 402-550-8040

Senator Deb Fischer: (202) 224-6551 or (402) 391-3411

Or your local House representative

South Dakota: Senator Mike Rounds: (202) 224-5842 or (605) 336-0486

Senator John Thune: (202) 224-2321 or (605) 336-0486

Or your local House representative