Expenditures paid back with 2020 PPP money should be subtracted to your 2021 taxation statements

Expenditures paid back with 2020 PPP money should be subtracted to your 2021 taxation statements

The fresh new Irs announced a secure harbor for sure firms that gotten first-round Salary Safeguards Program (PPP) financing however, failed to subtract all totally new qualified costs while they made use of guidance granted until the enactment of the Consolidated Appropriations Work, 2021 (CAA), P.L. 116-260, in the .

When you look at the Observe 2020-thirty two and Rev. Rul. 2020-27 (which were obsoleted of the Rev. Rul. 2021-2) the Internal revenue service provided an excellent taxpayer one to acquired financing as a consequence of the new PPP wasn’t allowed to deduct costs that are generally speaking allowable according to the Password on the quantity the fee of these costs resulted in PPP mortgage forgiveness. For the dependence on that guidance, of a lot taxpayers failed to deduct expenses reduced which have PPP loan proceeds on their 2020 tax returns. Congress later on made clear in the CAA that deductions are permitted having otherwise allowable costs paid back towards continues away from a good PPP mortgage that is forgiven and therefore the fresh new income tax base or any other attributes of borrower’s property won’t be smaller thus of your own mortgage forgiveness.

This new safer harbor within the Rev. Proc. 2021-20 allows taxpayers who registered a tax season 2020 get back to your otherwise in advance of tax get back in lieu of file amended efficiency or administrative improvement demands.

In secure harbor, susceptible to limits providing the fresh Internal revenue service to examine those individuals expenses towards the audit or demand additional information otherwise documents, a taxpayer could possibly get elect to deduct if not deductible brand new eligible expenses towards the taxpayer’s quick registered, also extensions, modern government income tax go back otherwise recommendations return on the taxpayer’s quickly after that tax 12 months, in the place of to your an amended get back otherwise administrative improvement request for the brand new taxpayer’s 2020 tax season where in fact the expenses was in fact repaid or sustained, if your taxpayer:

  • Is actually a great “covered taxpayer,” since discussed less than; and you may
  • Touches most of the standards into some time means of putting some election to put on the fresh new safe harbor.
  • New taxpayer received a unique PPP protected financing;
  • The fresh taxpayer paid back otherwise sustained amazing qualified costs within the taxpayer’s 2020 taxation seasons;
  • Into the otherwise before , the new taxpayer fast submitted, plus extensions, a national tax come back or guidance go back to your taxpayer’s 2020 taxation seasons; and you can
  • Towards the taxpayer’s federal taxation go back otherwise pointers come back, the taxpayer did not deduct the first qualified costs just like the: (1) The expense resulted in forgiveness of fresh PPP shielded mortgage; otherwise (2) the taxpayer reasonably asked after the brand new 2020 tax 12 months that the expenditures create cause that forgiveness.


Rev. Proc. 2021-20 does not connect with costs regarding stretched a number of costs inside the Section 304(b)(2) regarding Office Letter, Term III, of CAA, which a single or organization that acquired an original PPP protected mortgage you are going to located forgiveness. Since people the newest costs weren’t included included in the amazing eligible costs, men and women expenditures aren’t permitted getting subtracted using an election by the a secure taxpayer to utilize the secure harbor regarding the revenue techniques.

On top of that, the latest safe harbor will not apply to PPP second-mark money enacted underneath the CAA. Due to the fact PPP 2nd-draw money are not brand-new PPP secure finance, eligible costs that can result in forgiveness of them finance are not included in Rev. Proc. 2021-20.

Time and trend and work out election

To make a legitimate election to make use of this new secure harbor, a covered taxpayer must attach new report demonstrated below with the shielded taxpayer’s timely filed, and additionally extensions, government income tax return otherwise suggestions go back to the shielded taxpayer’s earliest taxation year adopting the secured taxpayer’s 2020 taxation year in the that your original qualified costs were paid off or sustained.

  • This new secure taxpayer’s term, address, and you will Societal Safety count otherwise taxpayer identification amount;
  • A statement the covered taxpayer was applying the safer harbor within the Rev. Proc. 2021-20;
  • Extent and you may day off disbursement of your taxpayer’s new PPP shielded financing; and you can
  • An inventory, as well as meanings and you may numbers, of your own fresh qualified expenditures repaid or incurred by the covered taxpayer in the secure taxpayer’s 2020 taxation season that will be advertised towards federal taxation get back or guidance get back to your first tax year following 2020 taxation 12 months.

The new money process is useful for taxation seasons conclude into the calendar year 2020 and also for the quickly after that income tax 12 months.