Morris Manning & Martin, LLP

New COVID-19 Relief Legislation Includes Deductibility of Business Expenses Funded with PPP Loans

12.28.2020

On December 27, 2020, President Trump signed the 2021 Consolidated Appropriations Act (the Act) into law. The Act provides $900 billion of relief, including expanding certain relief previously provided under the CARES Act (e.g., $600 additional stimulus checks for certain individuals and $275 billion in additional Paycheck Protection Program (PPP) loans). 

The CARES Act was not explicit on the deductibility of business expenses funded with PPP loans that are forgiven. The IRS took the position in published guidance that otherwise deductible business expenses paid with such funds would not be deductible. The IRS argued, under alternative grounds, that the taxpayer would otherwise receive a “double tax benefit.”

The position of the IRS, however, is no longer relevant as a result of the Act. The Act clarifies that the deductibility of business expenses funded with PPP loan proceeds will not be limited as a result of PPP loan forgiveness.  The Act further clarifies that the tax basis and other tax attributes of the borrower will not be reduced as a result of PPP loan forgiveness.

Other tax-related highlights from the legislation include:

  • PPP loan recipients are permitted to also use the employee retention credit, and 
  • Business meal expenses will be fully deductible in 2021 and 2022.

We are continuing to study the Act and will publish more detailed guidance in the days to come. 

If you have any questions about this legal update, please do not hesitate to reach out to the authors or any of your contacts at Morris, Manning & Martin, LLP.