Under the CARES Act, business expenses funded by a Paycheck Protection Program (PPP) loan and then forgiven would not be deductible business expenses (no double benefit under the tax code). The COVID-related Tax Relief Act of 2020, part of the large coronavirus law passed over Christmas week, made retroactive changes so “no deduction is denied, no tax attribute is reduced, and no basis increase is denied” as a result of PPP forgiven loans excluded from the business’s gross income.
The IRS and Department of Treasury have now issued guidance confirming the new law now supersedes the CARES Act and all prior guidance on the previously disallowed deductions, such as Revenue Ruling 2020-27 and Notice 2020-32. Employers with forgiven PPP loans (and those with forgiven Second Draw PPP loans) will now be able to utilize this new guidance in Revenue Ruling 2021-02 instead, for tax years beginning on/after March 27, 2020.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.