The IRS has issued official guidance rescinding IRS Notice 2020-32 and Rev. Rul. 2020-27 concerning the deductibility of eligible expenses used under the Payroll Protection Program (PPP). Last year, the Internal Revenue Service issued IRS Notice 2020-32 and Rev. Rul. 2020-27, which provided that companies that pay eligible, forgivable expenses with PPP funds may not also deduct such expenses as ordinary and necessary business expenses under Section 162 and Section 163(a) of the Internal Revenue Code.
However, on Dec. 27, 2020, Congress passed, and the President signed, the Consolidation Appropriations Act. The Consolidation Appropriations Act provided, under Section 276(a) of the Act that “no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness…no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income [provided under the PPP Program]. Due to this legislative change, the IRS issued Rev. Rul. 2021-2, which provides that IRS Notice 2020-32 and Rev. Rul. 2020-27 are now obsolete and are no longer accurate.
Therefore, with the passage of the Consolidation Appropriations Act and IRS Rev. Rul. 2021-2, taxpayers may now take a deduction for PPP-related expenses. If you have questions or would like to discuss further, please reach out to Demetrius Robinson (djr@kjk.com; 614.427.5749) or any of our Tax professionals.