Consolidated Appropriations Act, 2021 Clarifies Non-taxable and Deductible Tax Treatment for PPP Loan Forgiveness

Consolidated Appropriations Act, 2021 Clarifies Non-taxable and Deductible Tax Treatment for PPP Loan Forgiveness

The recent legislation has clarified what many businesses have been waiting for: taxpayer-friendly clarification of the tax effects of PPP loan forgiveness. Section 276 of the Consolidated Appropriations Act (“Act”) states that no amount from PPP (Paycheck Protection Program) loans “…shall be included in the gross income of the borrower by reason of forgiveness.” Further, the Act states that “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” of that amount due to forgiveness.

This legislation has reversed the IRS’s earlier interpretation of non-deductibility of expenses that were used for forgiveness (see Revenue Ruling 2020-27).

Section 278 of the Act also provides for the exclusion from income for payments made on your behalf by the Small Business Administration on outstanding SBA loans during 2020 and for Economic Injury Disaster Loan (EIDL) advances.

Here is a link to the text of the bill: Consolidated Appropriations Act, 2021 (house.gov). Section 276 starts on page 2004 of the nearly 5,600 page bill.