Businesses may elect to deduct PPP expenses in 2021 rather than filing an amended 2020 return.

For businesses that filed 2020 tax returns prior to the December 27, 2020 enactment of the Consolidated Appropriations Act of 2021, and did not deduct original eligible expenses, you now have some relief under Rev. Proc 2021-20.

Under a new safe harbor, such taxpayers may elect to deduct these expenses on a timely filed tax return for the year following the 2020 tax year rather than filing an amended return or administrative adjustment request for the 2020 taxable year. A previous notice, Notice 2020-32 and Rev. Rul. 2020-27, indicated that taxpayers would not be able to deduct expenses paid with the PPP loan proceeds on their 2020 tax returns. Congress then clarified in the Consolidated Appropriations Act in December 2020 that deductions are allowed in this scenario. The IRS’ new notice, Rev. Proc. 2021-20 reflects that clarification passed into law.

The notice does not allow PPP borrowers to take advantage of the additional covered expenses made available under the CCA.  Borrowers must use the original eligible expenses:

  1. payroll costs,
  2. interest on a covered mortgage obligation,
  3. any covered rent obligation payment, and
  4. any covered utility payment.

View the full notice from the IRS: Rev. Proc. 2021-20.

What does this mean for you?

If your business has already filed for tax year 2020 and did not deduct expenses paid with the PPP loan, you do not have to submit an amended return to be able to deduct those expenses. You can still deduct the items on next year’s return.

If you have further questions about the tax treatment of your PPP loan, contact Gary Gruner or Laura Berry.

At Windham Brannon, we are dedicated to keeping you up to date with the latest COVID-19 activity in our COVID-19 Resource Center. Our team is working around the clock to ensure we stay up to date on the latest guidance and information to assist you and your business during this unique time.