The Internal Revenue Service and the Treasury Department released guidance Wednesday on claiming deductions for expenses associated with Paycheck Protection Program loans that have been forgiven.
The guidance in Revenue Ruling 2021-02 also reverses previous guidance issued last year by the IRS and the Treasury when Treasury Secretary Steven Mnuchin fiercely opposed the ability to deduct expenses related to forgiveness of PPP loans. Industry groups, including the American Institute of CPAs, lobbied for the ability to write off such expenses, arguing it would help struggling businesses and was in line with congressional intent when the CARES Act was passed last year setting up the PPP loans as a way to get money quickly into the hands of desperate business owners. The latest coronavirus relief bill included a provision that allows the expenses to be deductible and revives the PPP with a fresh round of $284 billion in funding. It will allow expenses related to seeking forgiveness of the Small Business Administration-backed loans to be deducted by businesses that received the loans, so businesses will be able to engage accountants to help with the task of applying for PPP loan forgiveness.
Wednesday’s revenue ruling reflects some of the changes to the tax laws that were included in the COVID-related Tax Relief Act of 2020, which was enacted as part of the Consolidated Appropriations Act of 2021, signed into law on Dec. 27, 2020. The COVID-related Tax Relief Act of 2020 amended the CARES Act to specify that no deduction would be denied, no tax attribute would be reduced, and no basis increase would be denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. The change applies for tax years ending after March 27, 2020.
Craig Hinkley joined WhiteHat Security as chief executive officer in early 2015, bringing more than 20 years of executive leadership in the technology sector to this role. Craig is driving a customer-centric focus throughout the company, and has broadened WhiteHat’s global brand and visibility beyond the application security space and security buyer, to the world of the development organization and a DevSecOps approach to application development.
Prior to joining WhiteHat Security, Craig served as vice president and general manager of the LogLogic business unit for TIBCO Software. In that role, he was responsible for global field sales and operations, client technical services, engineering, research and development, product design, and product management. Before TIBCO, he served as the general manager at Hewlett-Packard for the HP Networking Business in the Americas. Earlier in his career, Craig held positions at Cisco Systems Inc. and Bank of America. He earned a bachelor’s degree in Information Technology from the Swinburne University of Technology in Australia.
Annette Wright is a senior director at Paradigm Technology. She has over 20 years of experience in data architecture, data management, business intelligence and regulatory / financial reporting. Prior to joining Paradigm, Annette has worked as a lead technical architect, data governance manager, lead business systems analyst and an IBM managing consultant.
She has been recognized for delivering a World Class Reporting Solution for EU LCR in 2016 by BNP Paribas and was a recipient of the 2007 Gold American Express Technology Excellence award for leadership in design and implementation.
The new revenue ruling thus obsoletes the old guidance from the IRS and the Treasury last year in Notice 2020-32 and Revenue Ruling 2020-27, which said the PPP loan forgiveness expenses couldn’t be deducted. The obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan, but that has been changed now in the new guidance.
“This law uncategorically says that all expenses that were paid to meet the requirements of having the PPP loans forgiven are now deductible,” said Evan Morgan, director of tax services at Kaufman Rossin, which does tax and accounting work for many professional services clients, including law firms and doctors’ offices. “That’s a very big deal, particularly because they weren’t sure how to plan for this because professional services firms are a little bit different than normal entities in that they like to pay out all of their profits in the form of salaries prior to the end of the year.”
Howard Wagner, a partner in the Washington national tax practice at Crowe, believes the IRS and the Treasury took the correct position last year on nondeductibility of PPP loan forgiveness expenses, but acknowledged it was politically unpopular and didn’t survive. However, there may be some extra complexity in accounting for the reversal on financial statements. “The interesting thing on the PPP is because the Service had said they were nondeductible, you had to account for them in your provision as if they were nondeductible,” he said. “And now you have to go back and adjust your provision for the fact that they will be deductible. That impacts the tax rate and that impacts your financial statement tax provision.”
