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IRS Rev. Rul. 2021-2

Summary

IRS Rev. Rul. 2021-2, which declares Notice 2020-32 and Rev. Rul. 2020-27 obsolete following § 276(a) of the COVID-related Tax Relief Act of 2020, enacted in the Consolidated Appropriations Act, 2021, Public Law 116-260 (Dec. 27, 2020). The earlier guidance denied deductions for expenses whose payment results in forgiveness of a Paycheck Protection Program loan. The ruling explains that § 276(a) provides that no deduction shall be denied, no tax attribute reduced and no basis increase denied by reason of the exclusion of forgiven amounts from gross income, applying to taxable years ending after March 27, 2020. The principal authors are Charles Gorham, Charles Magee and Bruce Chang.

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Full text

Rev. Rul. 2021-2



   This ruling obsoletes Notice 2020-32, 2020-21 I.R.B. 837 (May 18, 2020), and Rev.

Rul. 2020-27, 2020-50 I.R.B. 1552 (Dec. 7, 2020), due to the enactment of § 276(a) of

the COVID-related Tax Relief Act of 2020 (Act), enacted as Subtitle B of Title II of

Division N of the Consolidated Appropriations Act, 2021, Public Law 116-260, 134

Stat.1182 (Dec. 27, 2020).

   Notice 2020-32 and Rev. Rul. 2020-27 provide that certain taxpayers (eligible

recipients) may not deduct certain otherwise deductible expenses to the extent that the

payment of such expenses results (or is expected to result) in the forgiveness of a loan

(covered loan) guaranteed under the Paycheck Protection Program authorized under

§ 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) (SBA), as enacted by

§ 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public

Law 116-136, 134 Stat. 281, 286-93 (Mar. 27, 2020). Section 1106(b) of the CARES

Act provides for the forgiveness of covered loans and § 1106(i) of the CARES Act

provides, for purposes of the Internal Revenue Code, that any amount that otherwise

would be includible in an eligible recipient’s gross income by reason of such forgiveness

is excluded from gross income.

   Section 1106(i) of the CARES Act was redesignated, and transferred to § 7A(i) of the

SBA, and amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and

Venues Act, which was enacted as Title III of Division N of the Consolidated

Appropriations Act, 2021. Section 276(a) of the Act amended § 7A(i) of the SBA to

provide that no amount shall be included in the gross income of the eligible recipient by
reason of forgiveness of indebtedness described in § 7A(b) of the SBA. See § 7A(i)(1)

of the SBA. In addition, § 276(a) provides 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 provided by § 7A(i)(1) of the SBA. See § 7A(i)(2) of the

SBA. The amendment made by § 276(a) of the Act applies to taxable years ending

after March 27, 2020, the date of the enactment of the CARES Act. See § 276(a)(2) of

the Act.

   As a result of the amendment made by § 276(a) of the Act regarding the Federal

income tax consequences of covered loan forgiveness, the conclusion stated in Notice

2020-32, and the holding stated in Rev. Rul. 2020-27, are no longer accurate

statements of the law. Accordingly, Notice 2020-32 and Rev. Rul. 2020-27 are declared

obsolete as of the effective date of the amendment made by § 276(a) of the Act.

DRAFTING INFORMATION

   The principal authors of this revenue ruling are Charles Gorham, Charles Magee and

Bruce Chang, Office of the Associate Chief Counsel (Income Tax & Accounting). For

further information regarding this revenue ruling, please contact Mr. Chang at (202)

317-4870 or Patrick Clinton at (202) 317-4651 (not toll-free numbers).




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