Expenses paid with 2020 PPP loans can be deducted on 2021 tax returns

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April 24, 2021

Expenses paid with 2020 PPP loans can be dEDuctED on 2021 tax returns the IRS announcED a safe harbor for certain businesses that receivED first-round Paycheck Protection ProgRAm (PPP) loans but did not dEDuct any of the original eligible expenses because they reliED on guidance issuED before the enactMent of the ConsolidatED Appropriations Act, 2021 […]

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s paid with 00 PPP s can be duct on 01 tax returns

The announc a safe harbor for certain es that receiv ft-round Paycheck Protection Program (PPP) s but did not duct any of the orinal elible s because they reli on guidance issu before the enactment of the Consolidat Appropriations Act, 01 (CAA), P.L. 116-60, in December 00.

In Notice 00-3 and Rev. Rul. 00-7 (which were obsolet by Rev. Rul. 01-) the provid that a taxpayer that receiv a through the PPP was not permitt to duct s that are normally ductible under the Code to the extent the payment of those s result in PPP forveness. In reliance on that guidance, many taxpayers did not duct s paid with PPP proces on their 00 tax returns. Congress later clarifi in the CAA that ductions are allow for otherwise ductible s paid with the proces of a PPP that is forven and that the tax basis and other attributes of the borrower’s assets will not be ruc as a result of the forveness.

The new safe harbor in Rev. Proc. 2021-20 allows taxpayers who fil a tax year 00 return on or before Dec. 7, 00, to duct those s on their 01 tax return rather than file amend returns or administrative adjustment requests.

Under the safe harbor, subject to limitations permitting the to examine those s on audit or request itional or documentation, a taxpayer may elect to duct otherwise ductible orinal elible s on the taxpayer’s timely fil, including extensions, orinal feral income tax return or return for the taxpayer’s immiately subsequent tax year, rather than on an amend return or administrative adjustment request for the taxpayer’s 00 tax year in which the s were paid or incurr, if the taxpayer:

A cover taxpayer must satisfy all the following requirements:

Rev. Proc. 01-0 does not apply to s in the expand list of s in Section 304(b)() of Division N, Title III, of the CAA, for which an individual or entity that receiv an orinal PPP cover could receive forveness. Because those new s were not includ as part of the orinal elible s, those s are not elible to be duct through an election by a cover taxpayer to apply the safe harbor in the revenue procure.

In ition, the safe harbor does not apply to PPP second-draw s enact under the CAA. Because PPP second-draw s are not orinal PPP cover s, elible s that may result in forveness of those s are not cover by Rev. Proc. 01-0.

To make a valid election to apply the safe harbor, a cover taxpayer must attach the statement describ below to the cover taxpayer’s timely fil, including extensions, feral income tax return or return for the cover taxpayer’s ft tax year following the cover taxpayer’s 00 tax year in which the orinal elible s were paid or incurr.

The statement must be titl “Revenue Procure 01-0 Statement” (and nam RevProc01-0.f for e-file attachments) and include the following:

The revenue procure is effective for any tax year ending in calendar year 00 and for the immiately subsequent tax year.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior itor.


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