IRS Revenue Ruling Addresses Tax Benefits Related to Paycheck Protection Program Loans

The IRS has issued Revenue Ruling (Rev. Rul.) 2021-02, guidance that addresses certain tax benefits associated with employer loans under the federal Paycheck Protection Program (PPP), an element of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The PPP is a Small Business Administration lending program created by the CARES Act to help small employers meet payroll and other expenses, as businesses and the nation dealt with the economic effects of the coronavirus (COVID-19) pandemic. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group healthcare coverage, including payment of insurance premiums. If certain conditions are met, PPP loans can be forgiven and treated as a grant.

Rev. Rul. 2021-02 addresses questions related to other potential tax ramifications and/or benefits associated with expenses for which PPP loans are taken, including loans that are ultimately forgiven.

Rev. Rul. 2021-02 retroactively amends the CARES Act, as well as supersedes post-CARES Act guidance (Notice 2020-32 and Rev. Rul. 2020-27). In doing so, it provides that no amount will be included in the gross income of a PPP participant as a result of a PPP loan being forgiven. No tax deduction for such PPP-related expenses is to be denied, and no other tax benefit reduced, as a result of that exclusion from gross income.