Congress Authorizes Deductions For Qualifying Expenses Paid With PPP Forgivable Loan Proceeds

On December 27, President Trump signed the Consolidated Appropriations Act, 2021 (the "Act") into law. Despite opposition from the IRS, the Act provides that qualifying expenses paid with proceeds from a forgivable Paycheck Protection Program ("PPP") loan are deductible for federal income tax purposes, notwithstanding the fact that the PPP loan may be ultimately forgiven and exempt from income tax.

As we explained in prior alerts on May 1 and November 19, the CARES Act was silent on the deductibility of expenses paid by a taxpayer with the proceeds of a PPP loan which, as a result of the payment of those expenses, is later forgiven. The IRS made it clear that its view was that expenses paid with forgiven PPP loan proceeds would not be deductible, and it further clarified that delaying PPP forgiveness certification into 2021 would not enhance a 2020 deduction availability position. Several members of Congress expressed their disappointment with the IRS's position