Prior guidance on the PPP covered expenses reversed in taxpayer’s favor

On 6 January 2021 the IRS issued revised guidance that reverses its previous position that the business expenses paid for with the PPP loan that is forgiven are not deductible (hence disallowing the double dip). Revenue Ruling 2021-2 has been issued to say 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”. Hence, in addition to excluding the proceeds of the forgiven PPP loan from the taxable income, the business expenses covered by the loan are deductible. Per the Rev. Ruling, the change is applicable for tax years ending after 27 March 2020.