Rev. Rul. 2021-2

GiftLaw Note: In Rev. Rul. 2021–2, the IRS confirmed that the expenses covered by Paycheck Protection Program loans will remain deductible.

The original Paycheck Protection Program provisions enacted in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) intended to permit a deduction for expenses covered by the loans. The loan forgiveness provision was changed by Rev. Rul. 2020–27 and Notice 2020–32. Based upon the tax benefit rule and the fact that PPP loan amounts are not taxable, the Treasury Department determined that the covered expenses would not be deductible.

The Consolidated Appropriations Act of 2021 amended the prior IRS determination. It provided "that no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness described in Section 7A(b) of the SBA." This provision of the appropriations bill enabled businesses to receive a PPP Loan, use the funds for payroll and other covered expenses and still take the ordinary and necessary business deductions. This amendment applies to taxable years ending after March 27, 2020, the date the CARES Act was enacted.

The IRS therefore declares that Notice 2020–32 and Rev. Rul. 2020–27 are obsolete.

Alexander Scott is a senior manager for S Corporations/Partnerships for the American Institute of CPAs. He was pleased with the new Treasury guidance. Scott stated, "The guidance from Treasury confirms the treatment of PPP expense deductibility provided for in the Consolidated Appropriations bill. However, we are still expecting further guidance from Treasury and IRS on certain quirks that can occur regarding loan forgiveness and basis implications for partnerships and S corporations."