Eligible PPP Expenses Are Now Deductible
The Internal Revenue Service has eased the cost of participation in the Paycheck Protection Program (PPP) by allowing deductions for the payment of eligible expenses.
The deductions are outlined in guidance issued by the IRS, and are allowed when such payments would result—or be expected to result—in the forgiveness of a covered loan under the Paycheck Protection Program.
The guidance, contained in Revenue Ruling 2021-02, reflects recent changes to law contained in the Tax Relief Act of 2020. This legislation was part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.
The Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan.
The change applies for taxable years ending after March 27, 2020.
Revenue Ruling 2021-02 now makes both Notice 2020-32 and Revenue Ruling 2020-27 obsolete.
The outdated guidance disallowed deductions for the payment of eligible expenses when the payment resulted—or could be expected to result—in forgiveness of a covered loan.
For more information about this new guidance, the COVID-related Tax Relief Act of 2020 and other tax changes, visit the IRS website at IRS.gov.