The Internal Revenue Service has issued guidance implementing changes included in the latest COVID-19 relief package—which was signed into law last month—related to the deductibility of business expenses paid for with Paycheck Protection Program loan proceeds.
Section 276 of the new law clarified that forgiveness of PPP loans does not create taxable income for the borrower and confirmed that qualified expenses that result in PPP loan forgiveness are deductible. The new IRS guidance renders obsolete previous guidance that stated that the expenses were non-deductible. The change applies to taxable years ending after March 27, 2020.
The American Bankers Association welcomed these provisions and guidance, which provide important certainty and financial benefits for PPP loan forgiveness recipients.