Costs paid down which have 2020 PPP financing are subtracted to your 2021 tax returns

Costs paid down which have 2020 PPP financing are subtracted to your 2021 tax returns

Brand new Internal revenue service announced a safe harbor definitely companies that gotten first-bullet Salary Defense System (PPP) money however, did not deduct any of the unique qualified expenditures because they used suggestions provided till the enactment of one’s Consolidated Appropriations Act, 2021 (CAA), P.L. 116-260, in .

Inside Find 2020-thirty-two and you may Rev. Rul. 2020-27 (that have been obsoleted from the Rev. Rul. 2021-2) new Internal revenue service provided an effective taxpayer you to obtained a loan because of the fresh new PPP was not permitted to subtract expenditures which can be generally deductible under the Password into the extent the latest percentage of those expenditures resulted in PPP mortgage forgiveness. For the reliance upon one to suggestions, of a lot taxpayers failed to subtract expenses paid which have PPP loan proceeds on the 2020 tax returns. Congress afterwards made clear about CAA that deductions are allowed getting if not deductible expenses paid down with the proceeds off a good PPP loan that is forgiven and this new taxation basis or other qualities of borrower’s possessions will not be less because of this of financing forgiveness.

The brand new secure harbor into the Rev. Proc. 2021-20 lets taxpayers whom filed a taxation seasons 2020 go back to the otherwise just before income tax get back in place of file amended yields otherwise administrative improvement needs.

In safer harbor, susceptible to limitations providing brand new Internal revenue service to look at those expenditures for the review otherwise request additional info otherwise paperwork, an effective taxpayer could possibly get elect to subtract if you don’t deductible new eligible costs into the taxpayer’s punctual recorded, and extensions, brand new federal income tax come back otherwise pointers get back toward taxpayer’s instantaneously after that income tax 12 months, in lieu of into the an amended return or administrative modifications request the fresh taxpayer’s 2020 income tax seasons where the expenditures was indeed reduced or incurred, in the event the taxpayer:

  • Try a “protected taxpayer,” as the outlined below; and you may
  • Touches the conditions towards the some time and technique of putting some election to apply brand new safer harbor.
  • This new taxpayer acquired a unique PPP safeguarded loan;
  • The fresh taxpayer repaid otherwise incurred fresh qualified expenditures when you look at the taxpayer’s 2020 tax season;
  • With the or prior to , the newest taxpayer quick recorded, along with extensions, a national taxation go back otherwise suggestions go back toward taxpayer’s 2020 income tax year; and you can
  • To your taxpayer’s government tax come back or guidance go back, the brand new taxpayer don’t subtract the first eligible costs as: (1) The expense lead to forgiveness of the original PPP covered financing; otherwise (2) new taxpayer relatively questioned at the end of the latest 2020 tax year your costs would bring about one to forgiveness.


Rev. Proc. 2021-20 cannot apply at expenditures about expanded a number of expenses in the Area 304(b)(2) off Section Letter, Identity III, of your own CAA, whereby just one or organization one gotten an original PPP shielded financing could receive forgiveness. Due to the fact those the newest expenses just weren’t included as part of the amazing eligible costs, the individuals costs aren’t entitled to be deducted compliment of a keen election from the a covered taxpayer to utilize new safe harbor on money techniques.

Simultaneously, brand new safe harbor doesn’t affect PPP second-mark financing passed in CAA. Because PPP next-mark financing are not amazing PPP secured finance, qualified expenditures which can trigger forgiveness ones fund try not covered by Rev. Proc. 2021-20.

Some time fashion and come up with election

And also make a legitimate election to use the newest safe harbor, a secure taxpayer need attach the newest declaration discussed lower than towards safeguarded taxpayer’s punctual filed, and additionally extensions, federal taxation get back otherwise advice get back towards the protected taxpayer’s earliest tax season adopting the protected taxpayer’s 2020 income tax 12 months inside which the amazing qualified expenses were repaid otherwise incurred.

  • The newest covered taxpayer’s label, target, and you may Personal Security matter or taxpayer personality count;
  • A statement the secured taxpayer was using the secure harbor within the Rev. Proc. 2021-20;
  • The quantity and date off disbursement of your taxpayer’s brand spanking new PPP protected mortgage; and you will
  • An inventory, and additionally meanings and you may wide variety, of your own totally new qualified expenditures repaid or obtain of the protected taxpayer in the safeguarded taxpayer’s 2020 taxation season which might be claimed to your government tax return or pointers get back to the earliest income tax seasons following 2020 income tax season.

This new revenue processes is very effective the taxation season end for the twelve months 2020 and for the instantaneously then income tax seasons.