Brand new Irs announced a safe harbor for sure firms that acquired first-bullet Income Security Program (PPP) finance however, don’t deduct all original eligible expenses while they relied on recommendations provided before the enactment of Consolidated Appropriations Operate, 2021 (CAA), P.L. 116-260, inside .

When you look at the Find 2020-thirty two and you may Rev. Rul. 2020-27 (which were obsoleted by the Rev. Rul. 2021-2) new Internal revenue service provided that a good taxpayer one to received a loan because of the newest PPP was not permitted to subtract expenditures which can be normally deductible within the Password toward extent the new commission of them costs lead to PPP loan forgiveness. In the reliance on one to information, of several taxpayers did not deduct expenditures repaid which have PPP financing continues on the 2020 taxation statements. Congress afterwards clarified regarding CAA that write-offs are permitted having otherwise deductible expenses paid to your continues of a good PPP mortgage that’s forgiven which the fresh new taxation base or any other qualities of the borrower’s assets won’t be quicker this is why of the loan forgiveness.

The fresh new safer harbor when you look at the Rev. Proc. 2021-20 lets taxpayers whom filed an income tax year 2020 return towards the or just before taxation get back as opposed to file revised productivity or management changes demands.

Beneath the safe harbor, susceptible to limitations enabling brand new Irs to examine men and women costs for the audit or consult more details or paperwork, a beneficial taxpayer may choose to subtract otherwise allowable completely new eligible costs towards taxpayer’s prompt recorded, plus extensions, amazing government tax return or pointers come back to the taxpayer’s quickly after that taxation year, as opposed to into an amended go back otherwise administrative adjustment request new taxpayer’s 2020 tax seasons where in fact the expenditures was indeed paid off or incurred, should your taxpayer:

• Try good “secure taxpayer,” because outlined lower than; and
• Meets the requirements with the time and technique of making the election to make use of the new secure harbor.

• The fresh taxpayer obtained exclusive PPP protected loan;
• The fresh taxpayer paid back otherwise obtain original eligible costs during the taxpayer’s 2020 income tax season;
• On or before , new taxpayer timely registered, plus extensions, a federal taxation come back otherwise suggestions get back towards taxpayer’s 2020 tax seasons; and you can
• For the taxpayer’s federal income tax return or guidance go back, the newest taxpayer don’t subtract the initial eligible costs since the: (1) The costs lead to forgiveness of completely new PPP shielded financing; or (2) the newest taxpayer reasonably requested at the end of the fresh 2020 taxation 12 months your expenses create trigger you to forgiveness.

Exceptions

Rev. Proc. 2021-20 will not apply to expenditures regarding expanded set of costs during the Section 304(b)(2) from Department Letter, Identity III, of one’s CAA, for which an individual otherwise entity one to received a unique PPP covered mortgage you will located forgiveness. Once the the installment loans bad credit direct lender New Jersey individuals the new expenditures weren’t included as part of the new qualified expenses, men and women expenses aren’t permitted end up being subtracted using a keen election by a safeguarded taxpayer to utilize the latest secure harbor regarding the cash techniques.

While doing so, the new safe harbor cannot apply at PPP 2nd-draw funds introduced in CAA. Just like the PPP second-draw finance are not fresh PPP secure money, qualified expenditures that will lead to forgiveness of them finance try maybe not protected by Rev. Proc. 2021-20.

Some time and style to make election

To make a legitimate election to apply this new secure harbor, a protected taxpayer need certainly to attach the statement revealed less than on the secured taxpayer’s timely submitted, together with extensions, government tax return or recommendations go back for the secure taxpayer’s first income tax year after the protected taxpayer’s 2020 income tax 12 months inside the which the completely new eligible expenditures had been paid or obtain.

• The latest secured taxpayer’s identity, address, and Social Shelter count or taxpayer identity count;
• A statement the covered taxpayer try applying the safer harbor during the Rev. Proc. 2021-20;
• The total amount and you can big date from disbursement of your own taxpayer’s completely new PPP secure mortgage; and
• A listing, including definitions and you may number, of one’s fresh qualified costs reduced otherwise incurred by the shielded taxpayer when you look at the secure taxpayer’s 2020 tax season which might be reported to your government tax return otherwise advice return into very first tax year after the 2020 taxation year.

The new cash processes is useful for your tax seasons end in twelve months 2020 and for the instantly subsequent taxation seasons.