IRS has released guidance related to certain federal income tax aspects of the Paycheck Protection Program (PPP).
Revenue Procedure 2021-48 provides that no amount is included in the gross income of an eligible borrower by reason of the forgiveness of a PPP first draw loan or PPP second draw loan, respectively. For borrowers that are partnerships or S corporations, any amount excluded from gross income is treated as tax exempt income for purposes of basis calculations and passthrough items. Taxpayers may include the amount excluded from gross income (tax-exempt income) in connection with forgiveness as received or accrued (1) as eligible expense are paid or incurred, (2) when an application for forgiveness is filed, or (3) when the forgiveness is granted.
Revenue Procedure 2021-20 provides a safe harbor for for certain taxpayers that received a loan pursuant to the PPP and because of now obsoleted guidance, did not deduct certain otherwise deductible expenses paid or incurred. Under the safe harbor, such taxpayers may elect to deduct these expenses on the taxpayer’s timely filed original 2021 Federal income tax return rather than filing an amended return for the taxpayer’s 2020 taxable year.