December 23, 2020   //   COVID-19 Tax   //   By Mueller Solutions

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On December 21, 2020, Congress passed the Consolidated Appropriations Act (Act), 2021, which codified Congress’ original intent that Paycheck Protection Program (PPP) expenses should be tax deductible reversing the previously issued IRS guidance on this issue.

This provision in the Act was necessary because the IRS had issued Notice 2020-32 and Rev. Rul. 2020-27 indicating that a business could not deduct PPP loan-related expenses in 2020 if there was a reasonable expectation that the PPP loan would be forgiven in 2021. Those expenses are connected to the generation of tax-exempt income therefore resulting in those expenses being categorized as nondeductible.

Since the original CARES Act did not specifically address the deductibility of expenses the IRS and Treasury Secretary, Steve Mnuchin considered the deductibility of expenses to be an unwarranted double benefit for businesses. While the Act is still awaiting a signature from President Donald Trump, businesses can breathe a sigh of relief that all expenses incurred related to PPP loan forgiveness will be fully deductible once enacted.

In addition to the deductibility of business expenses related to PPP, the Act includes additional provisions to assist businesses:

  • New simplified application for PPP loans under $150,000
  • Repeal of the requirement to deduct EIDL advance payments
  • Introduction of PPP2 which will be available to both first-time borrowers and businesses who previously received a PPP loan if:
    • They have fewer than 300 employees
    • They have used or will use the full amount of their first PPP loan
    • They can demonstrate a reduction of 25% of gross revenue in any quarter in 2020 compared to the same quarter in 2019

We will provide more guidance around PPP2 as more details emerge. If you have any questions or are in need of additional planning, our team would be happy to assist in analyzing your situation.

Contact us for more information:

David J. Nissen, CPA/ABV, CVA
CEO/President
dnissen@muellercpa.com
(630) 524-5274

Robin D. Linklater, MST, CPA
COVID-19 Response Team Lead
rlinklater@muellercpa.com
(312) 888-4629