The U.S. Treasury Department and the IRS have issued new tax guidance for certain businesses that received first-round Paycheck Protection Program loans but did not deduct eligible expenses as they relied on previous agency direction.
The new guidance, which reflects legislation enacted last December, provides a safe harbor for small businesses that didn’t deduct certain otherwise deductible expenses paid or incurred during tax years ending after March 26, 2020 or before Dec. 31, 2020.
“Under the safe harbor, these taxpayers may deduct the expenses in the immediately subsequent taxable year,” the IRS said in the new guidance.
“This revenue procedure also obsoletes revenue procedure 2020-51.”
Under earlier guidance, businesses that received PPP loans to cover payroll costs, interest on mortgage obligations, rent, and utility payments could not deduct corresponding expenses.
But with the Dec. 27, 2020, enactment of the Consolidated Appropriations Act, 2021, businesses now may claim these deductions even though they received PPP loans to cover original eligible expenses.
These businesses can use the safe harbor provided by this guidance to deduct those expenses on the return for the immediately subsequent year.