Two examples are given in the Revenue Ruling.
- In the first example, the taxpayer submits the application for forgiveness, but is not informed on whether the loan will be forgiven by the end of 2020.
- In the second example, the taxpayer satisfies all the requirements for forgiveness but does not submit the application by the end of 2020.
- The expenses must be paid or incurred during the 2020 tax year,
- The taxpayer expects the loan to be forgiven in a year after 2020, and
- In that subsequent tax year, the request for forgiveness is denied or the request is never made.
As we mention above, the Revenue Ruling leaves us with unanswered questions. For instance, if a portion of the loan is forgiven, which expenses are deductible vs. non-deductible? Is the expense disallowance pro-rata? Is the expense disallowance at the taxpayer’s discretion? The disallowance could impact other aspects of the taxpayer’s return, like the calculation of the 199A deduction. The guidance is also silent on issues involving self-employed taxpayers and taxpayers with fiscal year ends. While this continues to be a frustrating area for tax practitioners and taxpayers in general, we will continue to look for additional guidance.
Your Bertz, Hess & Co. tax and business advisor will be happy to discuss any of these topics.