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.
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Andrew Roman Wells is the chief executive officer at Aspirent, a management-consulting firm focused on analytics. He has extensive experience building analytical solutions for a wide range of companies, from Fortune 500s to small non-profits. He is also co-author of "Monetizing Your Data: A Guide to Turning Data Into Profit-Driving Strategies and Solutions."
Maria T. Vullo was confirmed by the New York State Senate as Superintendent Financial Services on June 15, 2016. She was nominated for the position by Governor Andrew Cuomo. As Superintendent, she is responsible for protecting consumers and markets in New York State from fraud and financial crises, as well as reforming the regulation of financial services to keep pace with the industry’s rapid evolution.
Prior to joining DFS, Ms. Vullo was a litigation partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, where she led civil, criminal, and regulatory investigations before courts and governmental authorities across the country. Ms. Vullo also served as Executive Deputy Attorney General for Economic Justice Division in the Office of the New York State Attorney General, under then New York State Attorney General Cuomo. There she oversaw the Bureaus of Investor Protection, Antitrust, Real Estate Finance, Consumer Frauds and Internet, leading investigations across New York State to protect investors and consumers from fraud.
Over the course of her career, Ms. Vullo’s specific legal experience has included litigations and investigations involving the financial services sectors and fraud, real estate, health care, insurance, tax, consumer protection, bankruptcy, antitrust, and constitutional law.
An accomplished trial lawyer, Ms. Vullo has also argued before the U.S. Supreme Court, the U.S. Courts of Appeals for the Second, Ninth, and Tenth Circuits, and the New York State Appellate Division.
Ms. Vullo is a recognized leader in protecting women’s rights, including representing women raped by soldiers during the 1992-1995 Bosnian War – a case in which she secured a $745 million jury verdict for the plaintiffs. Her pro bono work also includes securing a $100 million jury verdict representing abortion providers whose lives had been threatened by an online “hit list” and numerous amicus curiae briefs to the U.S. Supreme Court in significant civil rights cases.
Ms. Vullo was twice nominated by the New York State Commission on Judicial Nomination as a candidate for Associate Judge of the Court of Appeals. She has been named a “New York Super Lawyer” by Super Lawyers Magazine and has been included in numerous leading lawyer lists published by the National Law Journal and other leading publications.
Ms. Vullo recently received the New York Women Making a Difference Award from Eleanor’s Legacy, the Humanitarian of the Year Award from the Interfaith Nutrition Network, and the Distinguished Corporate Citizen Award from A Better Balance, among many other awards and professional recognitions.
Ms. Vullo earned her J.D. from New York University School of Law, an M.P.A. from the New York University Wagner Graduate School of Public Service, and a B.A. from the College of Mount Saint Vincent. She clerked for the Hon. John A. MacKenzie, U.S. District Court, Eastern District of Virginia, following law school prior to entering private practice.
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.”
