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 Newmark is Web pioneer, philanthropist, and leading advocate on behalf of trustworthy journalism, voting rights, veterans and military families, and other civic causes. In 2017, he became a founding funder and executive committee member of the News Integrity Initiative, administered by the CUNY Graduate School of Journalism, which seeks to advance news literacy and increase trust in journalism.
In 2016, he created the Craig Newmark Foundation to promote investment in organizations that effectively serve their communities and drive broad civic engagement at the grassroots level. Amid growing concerns about the proliferation of “fake news” in the course of the presidential campaign, one of the foundation’s first donations went to the Poynter Institute to create the Craig Newmark Chair in Journalism Ethics. Newmark is widely credited for his leadership in promoting “news we can trust.”
After working at IBM as an engineer for nearly twenty years, Craig became a consultant to major firms like Charles Schwab, and in 1995 as the Internet was starting to take-off, he began curating a list of San Francisco arts and technology events he personally emailed to friends and colleagues. People were soon calling it "Craig's List,” and when Craig turned it into a company, he monetized it only minimally, opting for a business model that prioritized "doing well by doing good." Today more than 5 billion ads have been posted on the site, the vast majority for free. While Craig remains chairman of craigslist, he has not been involved in management since 2000. He continues to serve as a customer service rep so that he can stay connected to the community of craigslist users.
In 2012, Craig was inducted into the Internet Hall of Fame. He was named “Nerd-in-Residence” by the Department of Veterans Affairs Center for Innovation in 2013. In 2015, craigslist received an award from the FBI in recognition of its undisclosed cooperation with the Bureau in combatting human trafficking.
Craig serves on the board of directors of a range of nonprofits including: journalism organizations (Center for Public Integrity, Columbia Journalism Review, Poynter Foundation, Sunlight Foundation); veterans organizations (Blue Star Families, Iraq and Afghanistan Veterans of America, Vets In Tech); women’s groups (Girls Who Code, Women in Public Service Project) and consumer organizations (Consumers Union/Consumer Reports). In addition, he serves on the advisory boards of nearly twenty other nonprofit organizations including, DonorsChoose, EFF, New America Foundation, Voto Latino, Wikimedia Foundation, Women Who Tech, and many others.
Born in Morristown, New Jersey in 1952, Craig earned degrees in computer science from Case Western Reserve University. He lives in San Francisco and enjoys bird- and squirrel-watching, science fiction, TV, and Dad jokes.
Craig communicates regularly through his own blog at craigconnects.org and through Facebook, Twitter, LinkedIn, Medium, and HuffPost. He also travels the country speaking about issues and appearing on behalf of organizations he supports.
Devin Gharibian-Saki is chief solution officer at Redwood Software.
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.”
