May 16, 2021

Volume XI, Number 136

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May 13, 2021

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Mississippi Should Follow New Federal Treatment of PPP Deductions

When Congress recently passed Consolidated Appropriations Act of 2021, it explicitly reversed the IRS’s earlier position that expenses paid with non-taxable forgiven PPP loan proceeds could not be deducted.  As a result of this legislation, the IRS recently issued Revenue Ruling 2021-2 confirming that the act reversed its prior guidance in Notice 2020-32 and Rev. Rul. 2020-27 which purported to deny a “double-dip” with those deductions.  Thus, for federal income tax purposes the expenses paid with those funds should be fully deductible even if the forgiven PPP loans are non-taxable.

Mississippi should follow the new federal treatment due to legislation passed in 2020.  House Bill 1748 was enacted to explicitly deny “a deduction for otherwise deductible payments paid with funds received under the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but only to the extent those payments are not allowed as deductions for federal income tax purposes.  To the extent such payments are allowed as deductions for federal income tax purposes, those expenses shall be deemed to have been incurred in connection with earning and distributing taxable income, notwithstanding that such payments resulted in forgiveness of loans received.”

This provision has since been codified as a new Section 27-7-109 in the tax code.  (NOTE: as of this writing it does not appear this new statute is included in all reporting services, including the version provided to the public for free on the Mississippi Legislature’s website.)

The broad language in the new Section 27-7-109 should preclude the Department from taking the position that the expenses were incurred in generating non-taxable income and therefore non-deductible, as those types of expenses are generally disallowed via Miss. Code Ann. Section 27-7-17(1)(a) (“Expense incurred in connection with earning and distributing nontaxable income is not an allowable deduction”).

With the 2021 Legislature currently in session, however, taxpayers should monitor proposed legislation in the event a bill is introduced to re-establish that non-deductibility.

 

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© 2021 Jones Walker LLPNational Law Review, Volume XI, Number 6
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About this Author

John Fletcher Tax Lawyer Jones Walker Law Firm
Partner

John Fletcher is a partner in the firm's Tax & Estates Practice Group and practices from the Jackson, Mississippi office. With more than twenty years' experience in the legal, corporate, and accounting arenas, his practice focuses primarily on state tax matters, encompassing Mississippi, Louisiana and multi-state income, franchise, sales, use and local ad valorem taxes.

He is a contributor for Cooking with SALT, a legal blog committed to providing timely insights on recent legal and practical developments concerning clients...

601-949-4620
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