Costs repaid that have 2020 PPP money will be deducted on the 2021 tax returns

Costs repaid that have 2020 PPP money will be deducted on the 2021 tax returns

The Internal revenue service established a secure harbor needless to say firms that gotten first-bullet Salary Safety Program (PPP) financing however, failed to subtract all brand spanking new qualified expenses because they relied on guidance approved until the enactment of the Consolidated Appropriations Operate, 2021 (CAA), P.L. 116-260, into the .

During the Observe 2020-32 and you can Rev. Rul. 2020-twenty seven (which were obsoleted because of the Rev. Rul. 2021-2) this new Internal revenue service provided an effective taxpayer one gotten that loan by way of the latest PPP wasn’t permitted to subtract expenditures that are usually deductible according to the Password towards the extent brand new percentage ones costs triggered PPP loan forgiveness. Into the reliance upon that recommendations, of several taxpayers failed to deduct expenditures paid off having PPP financing continues to their 2020 tax returns. Congress later on made clear regarding CAA one deductions are allowed to own or even deductible expenditures reduced toward proceeds regarding an excellent PPP financing that is forgiven and that the newest income tax basis or other features of your own borrower’s property are not smaller thus of one’s mortgage forgiveness.

The fresh new safe harbor inside Rev. Proc. 2021-20 allows taxpayers whom registered a tax seasons 2020 come back to your otherwise before income tax get back as opposed to document amended efficiency otherwise administrative changes desires.

Within the safe harbor, susceptible to limitations enabling the Internal revenue service to look at men and women expenses on the review otherwise demand additional information otherwise records, good taxpayer may elect to subtract if you don’t deductible completely new eligible expenditures with the taxpayer’s punctual filed, as well as extensions, brand spanking new federal tax come back or advice go back on taxpayer’s instantaneously subsequent taxation seasons, unlike for the a revised get back or administrative variations obtain the taxpayer’s 2020 tax year in which the expenses was basically paid off or incurred, whether your taxpayer:

  • Is a “shielded taxpayer,” given that laid out lower than; and you may
  • Meets all of the criteria on the some time and technique of deciding to make the election to utilize the fresh new secure harbor.
  • The new taxpayer gotten an original PPP secure loan;
  • The fresh taxpayer paid back or obtain original qualified expenditures into the taxpayer’s 2020 tax 12 months;
  • Into otherwise prior to , brand new taxpayer fast registered, in addition to extensions, a national tax get back or guidance go back on the taxpayer’s 2020 income tax season; and
  • To the taxpayer’s federal tax come back otherwise recommendations return, the newest taxpayer didn’t subtract the original eligible costs as the: (1) The expense resulted in forgiveness of modern PPP shielded mortgage; otherwise (2) brand new taxpayer reasonably requested after the new 2020 tax seasons that the expenditures do end in you to definitely forgiveness.


Rev. Proc. 2021-20 does not connect with expenditures on offered range of expenditures in Area 304(b)(2) from Department Letter, Identity III, of CAA, for which a single or entity you to definitely obtained an original PPP protected loan you may found forgiveness. Given that the individuals the brand new expenditures weren’t incorporated included in the modern qualified costs, men and women expenditures aren’t permitted feel deducted courtesy an election by a shielded taxpayer to make use of the fresh new secure harbor in the money techniques.

Additionally, the fresh safe harbor cannot apply at PPP second-draw money enacted underneath the CAA. Once the PPP 2nd-mark funds aren’t original PPP protected loans, qualified costs that can cause forgiveness of these funds try perhaps not protected by Rev. Proc. 2021-20.

Some time style to make election

Making a legitimate election to put on the latest safer harbor, a secure taxpayer need install brand new declaration discussed below toward shielded taxpayer’s fast submitted, together with extensions, government tax get back or suggestions go back on the safeguarded taxpayer’s very first income tax 12 months after the shielded taxpayer’s 2020 taxation seasons within the that brand new qualified expenses was basically paid off or incurred.

  • The newest protected taxpayer’s name, address, and you will Public Coverage number or taxpayer character amount;
  • An announcement that covered taxpayer are using the safer harbor within the Rev. Proc. 2021-20;
  • The quantity and you will go out away from disbursement of one’s taxpayer’s brand new PPP safeguarded mortgage; and
  • An inventory, together with descriptions and amounts, of your brand spanking new eligible expenses repaid otherwise incurred of the protected taxpayer in the secure taxpayer’s 2020 taxation season that are advertised on federal taxation get back otherwise recommendations come back into basic taxation year following the 2020 taxation season.

The brand new funds procedure works well for your taxation seasons conclude during the calendar year 2020 and for the quickly then taxation 12 months.