April 28, 2021

New PPP Expense Safe Harbor Announced

Since the Paycheck Protection Program (PPP) was created as part of the CARES Act in March 2020, there have been 274,303 loans issued to Georgia companies totaling $8.5B.  Since the start of the pandemic, PPP loans have become increasingly popular, in part, because of the possibility of full loan forgiveness. However, the program has undergone dozens of changes and updates because of how quickly it was rolled out. This often meant the guidance issued at the start of a month would likely be updated or completely changed within weeks.

Although there are several examples of this, the most recent was when the Consolidated Appropriations Act (CAA), was passed in late December. Previously, businesses were not permitted to deduct eligible expenses paid with loan funds. The CAA reversed this ruling, but those who did not deduct eligible expenses on the 2020 return missed a significant benefit. The IRS recently released Rev. Proc. 2021-20 creates a safe harbor allowing businesses that already filed to deduct eligible expenses on the 2021 return. To help clients, prospects, and others, Wilson Lewis has provided a summary of key details below.

Key Safe Harbor Details

Under the new safe harbor program, impacted businesses are permitted to deduct eligible expenses on the 2021 return, rather than file an amended return. This assumes the business qualifies as a covered taxpayer and satisfies other requirements. To be considered a covered taxpayer, all the following requirements must be satisfied, including:

• The business must have received an original PPP covered loan.
• Paid or incurred eligible expenses during the 2020 tax year.
• Must have filed a 2020 federal income tax or information return on or before December 27^th, 2020.
• On the 2020 return, eligible expenses were not deducted because the expenses result in loan forgiveness or there was a reasonable expectation the expenses would result in forgiveness.

Making the Election

Under safe harbor rules, a taxpayer must attach a statement to the 2021 federal income tax return which provides certain PPP loan information and related expense information. The election must be named “Revenue Procedure 2021-20 Statement” and include the following:

1. The taxpayer’s name, address, and Social Security number or Taxpayer Identification Number (TIN).
2. A brief statement that the taxpayer is applying for the safe harbor election.
3. The amount and date of disbursement of the original PPP covered loan.
4. A list of the original eligible expenses paid or incurred, during the taxpayer’s 2020 taxable year reported on the 2021 federal income tax or information return.

Exemptions

There are certain expenses that do not qualify under the safe harbor program. Specifically, new expenses permitted under the CAA are not eligible because they were not permitted under the original guidance. This includes expenses incurred for property repairs caused by public disturbances and for Personal Protective Equipment (PPE). In addition, second draw loans are also excluded.

Contact Us

The new safe harbor program is welcome news for those taxpayers left with no other choice than to file an amended 2020 return.  If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.