IRS Offers Safe Harbor for Claiming PPP Loan Deductions

AAFCPAs would like to make clients aware that the IRS has recently released a revenue procedure (Rev. Proc. 2021-20) that provides a safe harbor for certain businesses claiming Paycheck Protection Program (PPP) loan deductions.

The Rev Proc is applicable for taxpayers that received a PPP loan but did not deduct certain otherwise deductible expenses paid or incurred during the taxable year(s), due to “reasonable expectation of forgiveness” of their loan. This may have been the case for taxpayers who followed guidance issued by the Department of the Treasury and IRS prior to the enactment of the Consolidated Appropriations Act, 2021. As you may recall, the IRS had previously taken the position that the expenses for which entities had a “reasonable expectation of forgiveness” would be disallowed a deduction as an ordinary and necessary business expense.

The revenue procedure is effective for any tax year ending in the calendar year 2020 and for the immediately subsequent tax year.

There are certain exclusions and a time and manner in which to make the election. Please contact your AAFCPAs Tax Partner to discuss your specific facts and circumstances.

As always, AAFCPAs’ COVID-19 Task Force will continue to monitor the status of the legislation, as well as communications from the IRS and the Treasury Department. We will keep you informed as changes occur or become clarified.

If you have any questions, please contact Richard Weiner, CPA, MST at 774.512.4078, rweiner@nullaafcpa.com; or your AAFCPAs Partner.