Safe Harbor to Deduct Expenses Paid with First-Round PPP Loan (IRC §161)

A new safe harbor allows “covered taxpayers” to elect to deduct expenses paid for with a Paycheck Protection Program (PPP) loan that they did not deduct due to IRS guidance issued prior to the passage of the Consolidated Appropriations Act, 2021. Revenue Procedure 2021-20, notes that if on the taxpayer’s timely filed original federal income tax return or information return, as applicable, for the taxpayer’s first taxable year following the taxpayer’s 2020 taxable year rather than filing an amended return or administrative adjustment request for the taxpayer’s 2020 taxable year.

Impacted taxpayers are those that did not deduct certain otherwise deductible expenses paid or incurred during the taxpayer’s taxable year(s) ending after March 26, 2020, and on or before December 31, 2020 (2020 taxable year) that resulted in, or were expected to result in, forgiveness of the loan, the IRS provided. Qualifying “covered taxpayers” and expenses not covered by the safe harbor are identified in the guidance. The time and manner for making the election is provided. Revenue Procedure 2020-51 is obsoleted.