IRS Issues Revenue Ruling 2021-02 Which Allows Deductions For PPP Expenses!

The Internal Revenue Service and the Treasury Department released Revenue Ruling 2021-02 on January 6, 2021 regarding 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. 

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.

Revenue Ruling 2021-02 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.

Revenue Ruling 2021-02 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.

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