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.
Holly Sraeel is Founder of The Most Powerful Women in Banking and SVP of Strategy and Content, American Banker Live Media, leading content creation and innovation for the events and live media portfolio and introducing new multimedia and invitation-only experiences for senior executives that drive critical conversations and action around corporate strategy, innovation and financial performance. She is part of the company's operational leadership team and is focused on developing cross-platform programming that creates higher levels of engagement for subscribers, community participants and partners across the company's brands, including American Banker, The Bond Buyer, National Mortgage News, Accounting Today, Digital Insurance, Financial Planning and Employee Benefits News.
Sraeel is an award-winning editorial director, media executive and content strategist with expertise in developing influential content, communities, and events for C-level executives in the banking and financial services, insurance, and technology industries. Prior to joining Arizent, she held several content leadership and strategist roles, including for B2B media consultancy New York Ventures, capital markets management consultancy Opimas, Oxford University-incubated startup Wise Responder, and as cofounder of Genesys Partners' Agility First Forum.
This new role marks a return to the company for Sraeel. In her previous 12-year run, she was a member of the executive team and was pivotal in driving new cross-platform editorial, events and business innovation as SVP of Brand Management; Group Editorial Director of Banking and Technology magazines; and Founder, President and Editorial Director of The Most Powerful Women in Banking,™ the company's first-ever, community-based media platform, now part of Arizent's flagship American Banker.
Sraeel is an early honors graduate of Marist College with a Bachelor of Arts degree in Communications and a concentration in journalism.
Laurence Whittam is the founder of Impact Global Solutions, an independent outsourcing consultancy serving CPA firms across the United States. A nationally recognized strategist, speaker, and author, he has been named named a Top 20 Under 40 Influencer by CPA Practice Advisor, and is the co-author of the AICPA Outsourcing Toolkit. He is also the host of the Business Beyond Borders Podcast.
Al Rogers is a seasoned healthcare executive with over 20 years of experience in consumer-driven health and benefits innovation. At ECHO, Al leads the growth and strategy for Premium Payment Manager—an automated payment solution purpose-built to help brokers, TPAs, and carriers deliver ICHRAs that feel and function like traditional group plans.
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.”
