IRS Reverses on PPP Deductibility
Print this Article | Send to Colleague
On January 11, 2020, the IRS released updated guidance that allows taxpayers to deduct eligible business expenses paid for with a PPP loan received during 2020. Furthermore, the new guidance allows deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan).
The new rule clarifies the treatment of the deduction of expenses and provides that no amount will be included in the gross income of the eligible PPP loan recipient. This can include rent, mortgage, utilities, salaries, etc.
Background:
On April 30, 2020, the IRS published Notice 2020-32 clarifying that taxpayers whose PPP loans were forgiven could not deduct business expenses covered by such loan proceeds. This problem which stems from the original CARES Act passed in Spring of 2020 failed to nod one way or the other to deductibility. Lawmakers on both sides of the isle, in both chambers wrote to the IRS claiming this does not fall under Congress’s legislative intent, but IRS says this wasn’t explicitly outlined and was therefore left for the agency to decide.
On December 27, 2020, The CARES 2.0 which was passed in late December of 2020 clarified the legislative intent behind the deductibility. The IRS subsequently issued new guidance (Rev. Rul. 2021-2), reversing its original position in the aforementioned Notice 2020-32.
View the posted IRS notice, here. Also, the IRS guidance, here.
If you have any questions about the new guidance please contact, Advocacy@tianet.org.
