The COVID-related Tax Relief Act of 2020 was enacted as part of the Consolidated Appropriations Act of 2021. The COVID-related Tax Relief Act of 2020 amended the CARES Act to specify that no deduction would be denied, no tax attribute would be reduced, and no basis increase would be denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. The change applies for tax years ending after March 27, 2020.
Both the Treasury Department and IRS have provided guidance towards allowing deductions for payments of eligible expenses. These payments are expected to result in the forgiveness of a loan that is under the Paycheck Protection Program (PPP).
Optima Tax Relief provides guidance on the Revenue Ruling 2021-02 which dictates that eligible taxpayers may not deduct certain expenses to the extent that the payment of the expense in question is expected to result in the forgiveness of a loan guaranteed under the Paycheck Protection Program. This new guidance reflects changes to the COVID-related Tax Relief Act of 2020 which was signed into law on December 27, 2020.
Revenue Ruling 2021-02 obsoletes Notice 2020-32 and Revenue Ruling 2020-27. This obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in the forgiveness of a covered loan.
The new COVID-related Tax Relief Act of 2020 has amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and details that any amount that would otherwise would be included in an eligible recipient’s gross income by reason of such forgiveness would be excluded from gross income.
For more information about this, the COVID-related Tax Relief Act of 2020, and other tax changes, visit IRS.gov.