New tax law replace: Deductibility of PPP-financed bills

After initial hesitation, President Trump signed Law HR 133 last night, which includes mid-bills and provides approximately $ 900 billion in COVID-19 relief. A tax rule allows deductibility of expenses funded by PPP loan issued and reverses the IRS interpretation of the CARES Act of March 27th.

The CARES Act introduced the Paycheck Protection Program (PPP), which made certain PPP loans eligible for grant provided that those loans were used for eligible compensation and other wage and salary costs, mortgage interest, rents and ancillary costs that were incurred and / or were paid during a prescribed period and certain documentation requirements were met. The CARES Act specifically provided that taxpayers would not recognize the cancellation of debt income for federal income tax purposes when a PPP loan was granted. However, the CARES Act did not address the deductibility of expenses covered by PPP loans. This may have been an oversight due to the hasty drafting. Since the passage of the CARES bill, several senior members of Congress have stated that they intend to make the costs covered by PPP loans deductible, regardless of whether those PPP loans are made. However, the IRS has taken a contrary view. In IRS Notice 2020-32 issued in April, the IRS stated that otherwise tax-deductible expenses incurred by businesses with proceeds from PPP loans are non-tax-deductible provided that such loans are excluded from taxable income. (See the May 4 warning here regarding the position of the IRS.)

In addition to the IRS Notice, Congress provides in HR 133 that business expense deductibility cannot be denied when a PPP loan is excluded from taxable income.

In addition, HR 133 is revitalizing the PPP loan program, including allowing certain eligible companies to borrow for a second time. HR 133 adds some of the following to the forgivable expenses listed above: supplier costs, expenses for workplace changes related to Covid security, enterprise software and cloud computing services, and costs for property damage due to public disruption in 2020 not covered by insurance are .