The IRS has released guidance in Revenue Procedure 2021-20 which will allow taxpayers who reduced their deductions for expenses paid using forgiven Paycheck Protection Plan (PPP) loan proceeds to elect to take those deductions in the following taxable year, rather than amending their current year return.
PPP loans, created by the CARES Act, allow forgiveness if recipients meet certain criteria. Loan forgiveness is specifically excluded from taxable income. The IRS initially ruled that taxpayers must reduce deductions for expenses paid from loan proceeds if the loan was forgiven or expected to be forgiven. The Consolidated Appropriations Act (CAA), enacted on December 27, 2020, reversed this guidance and provided that deductions are allowed in full.
This new guidance addresses taxpayers that filed returns reducing deductions before the CAA was enacted. The Revenue Procedure guidance is available specifically for taxpayers that filed a timely return on or before December 27, 2020, which excluded the deduction for expenses paid from PPP loan proceeds that were forgiven or are expected to be forgiven. Such taxpayers may elect to claim the lost deductions on the return for the following taxable year by attaching a statement to the return.
If this Revenue Procedure effects your tax return or for questions related to PPP or CAA, contact your CBIZ tax advisor.
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