Breaking news: IRS reverses guidance on deductible Paycheck Protection Program eligible expenses
On Jan. 6, 2021, the IRS issued Rev. Rul. 2021-2 reversing its prior guidance on the deductibility of Paycheck Protection Program (PPP) eligible expenses.
Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP, which is a Small Business Administration (SBA) loan program designed to incentivize small businesses to keep their workers on the payroll during the COVID-19 pandemic. Under Section 1106 of the CARES Act, the SBA will forgive PPP loans if the money is used for payroll, rent, mortgage interest or utilities (eligible expenses). Under Section 1106(i) of the CARES Act, PPP loan forgiveness is excluded from gross income. 15 U.S.C. §9005(i). The CARES Act was silent regarding the deductibility of eligible expenses. On April 30, 2020, the IRS published Notice 2020-32, stating its opinion that the eligible expenses are not deductible if the PPP loan is forgiven.
However, in the newly enacted Economic Aid to Hard-Hit Small Businesses, Nonprofit, and Venues Act, Congress amended the CARES Act to provide that no deduction shall be denied by reason of PPP loan forgiveness. Because of this new law, the IRS obsoleted Notice 2020-32 and now agrees that eligible expenses are deductible.
For information regarding other important components of this new law and how they affect eligible businesses, please refer to Chuhak & Tecson’s Dec. 31, 2020, client alert.
Please contact one of the attorneys in Chuhak & Tecson’s Tax & Employee Benefits group for additional guidance regarding PPP-eligible expenses or any other PPP-related issues.
Client alert authored by David B. Shiner (312 855 4319), Principal and Practice Group Leader of the Tax & Employee Benefits group.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such. |
