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Eligible Paycheck Protection Program Expenses Now Deductible

January 11, 2021

On December 27, 2020 the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, was signed into law on Dec. 27, 2020.  This new tax law confirmed that confirmed that congress intended for eligible business expenses to be deductible even if the Paycheck Protection Program (PPP) loans that funded the expenses were forgiven.

Following the enactment of the COVID relief law, the Treasury Department and the Internal Revenue Service issued new conforming guidance allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the PPP.

The new and welcome guidance, Revenue Ruling 2021-02, reflects the expressed requirement in the Act that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.

Treasury’s new guidance reverses its prior position that expenses that were funded with forgiven PPP loans were not deductible and obsoletes Notice 2020-32 and Revenue Ruling 2020-27.

For more information about this, the COVID-related Tax Relief Act of 2020, and other tax changes, please reach out to a Shuttleworth & Ingersoll attorney.


Attorney Author

Jonathan C. Landon

Jonathan C. Landon is an Attorney and Vice President with Shuttleworth & Ingersoll, P.L.C., and chair of the Business Law Practice Group. Jon advises individuals, businesses, and tax-exempt organizations in: Federal and state tax matters; general business transactions; deferred compensation and employee benefits; and estate and succession planning. Jon also helps clients resolve tax disputes with the Internal Revenue Service and other tax authorities.

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