Tax Provisions of the Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act, 2021, signed by President Trump on December 27, 2020 (Pub. L. No. 116-260), includes a number of tax provisions, many of them extenders. One of the most remarkable provisions is Congress’s decision, contrary to that of the IRS, to treat expenses satisfied with the proceeds of a forgiven Paycheck Protection Program (PPP) loan as tax deductible, which is made more remarkable in that a forgiven PPP loan is not recognized as income. Additionally, the law provides that “no tax attribute shall be reduced, and no basis increase shall be denied” by reason of the exclusion from income of a PPP loan.

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• Lawmakers Unveil COVID-19 Relief With PPP Deductibility
  Read this article which discusses introduction of the tax deduction provision into the omnibus bill. The IRS, in I.R.S. Notice 2020-32, had maintained that no I.R.C. deduction would be allowed for an otherwise deductible expense if payment of the expense results in forgiveness of a PPP loan. The PPP, created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. No. 116-136), authorized loans to certain businesses affected by the COVID-19 pandemic. Those loans could be made to small businesses that retain employees, but the loan would be forgiven if spent on payroll and benefits, mortgage interest, rent, utilities, and interest on other debts.

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