PPP forgiveness Loans
In a previous letter that I wrote to you, we were advising clients to hold off on applying for PPP Forgiveness because we believed the recognition of income would be in the year that you actually received the forgiveness, generally expected to be in 2021.
Several days ago, the IRS issued a ruling (Rev Rul 2020-27) that specifically addresses expenses paid in 2020 from PPP loans that are forgiven in 2021. In the notice, the IRS is very clearly stating that if you have a reasonable expectation of forgiveness of expenses paid in 2020, then those expenses may not be deducted on your 2020 business tax return.
Unless you’re a sole proprietor or partnership with no employees, You should plan that you may owe approximately one third of the amount you received in your PPP loan with your 2020 income tax return.
We do not believe that this was Congress’s intent when the PPP programs was first announced, and it is possible that if Congress can pass a 3rd Coronavirus stimulus bill, that this ruling will be reversed. We also believe that this ruling is not even handed, since payments that are made to sole proprietors and partners for reasonable compensation are not subject to this ruling (because there is no tax deduction), yet payments to owners who have S or C corporations are subject to the PPP expenses for themselves to be disallowed. You may wish to reach out to your congressional representative on this.
Based on all of this , we are actively working on all the PPP forgiveness applications now, and anticipate that most should complete by the end of the first quarter of 2021.
New Hampshire Main Street Relief funds
Quite a few of our clients have been receiving grants from New Hampshire for Main Street Relief.
These grants were made based on your expectation of lower sales for 2020 versus 2019. These monies will all be income in 2020 unless we are aware that New Hampshire will ask for the money back based on your filed New Hampshire tax returns.
If we do not already have them, it is imperative that we have your award letters from the state so that we can determine if you may need to give the money back, including any New Hampshire Round 2 letters that you may shortly receive. If it appears that you will not have to give the New Hampshire grant money back, we will include all the money received in 2020 as additional income in our projection of your 2020 income. Similar to the PPP funds, you should plan to owe approximately one third of the amounts you received from this program.
As usual, please reach out to Paul, Karen or me if you have additional questions on this. We wish you all a happy and safe Thanksgiving holiday.