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.
With Forrester since July 2005, Diego primarily contributes to and advises on Forrester's offerings for Application Development & Delivery Professionals. He partners with Forrester's global application leaders and is a leading expert on SDLC processes and practices, covering topics such as Agile development, Agile and Lean transformations, Agile development sourcing strategies and services, Agile testing practices and tools, DevOps, and software testing and quality, with a key focus on systems of engagement. Diego also covers software delivery metrics, artificial intelligence, and open source governance.
His 28 years of industry experience, in addition to application development, allow him to give expert advice on change management programs for optimizing the overall modern application delivery process, execute technology management assessments, review technology management strategies, and make comparisons. He also has experience in complex mission-critical project and client engagement management.
Previous Work Experience
Prior to joining Forrester, Diego held international management positions covering various roles, such as director consultant at Meta Group and head of Agile product development for advanced reuse methods and technologies at Quartersoft. He was also regional VP and director for consulting at Genesis/Iona, where he helped many clients transition to distributed applications. He also worked as an enterprise architect and project/product manager, participating in various pan-European projects. He started out as a software engineer, developing AI tools and early graphical user interface technologies at Olivetti.
Diego has also been very active in global open software standards consortia such as OMG, contributing to the early specifications of middleware standards such as CORBA and model-driven architecture. He has been a frequent speaker and panelist at many European conferences on software development.
Diego has published various research reports on open source, software reuse, semantic Web, and object technology, including the AI book Practical Experience in Building Expert Systems.
Education
Diego received a master's degree in computer science from Pisa University in Italy, and he specialized in artificial intelligence through on-site courses at Stanford University and SRI Palo Alto during a two-year working internship with Olivetti in the US.
David Flower is chief executive officer at VoltDB.
Luisa Brenton is a business and technology blogger who covers a variety of hardware and software topics.
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.”
