Posts Tagged ‘PPP.Loans’

IRS Appears to Add Requirement for Individuals to Include Statement on PPP Loan Forgiveness for 2021 Personal Returns

Monday, December 6th, 2021

On Friday, the IRS released draft instructions for Form 1040.  Buried on page 23 of the instructions (page 24 of the PDF) is the following:

Forgiveness of Paycheck Protection Program (PPP) Loans

The forgiveness of a PPP Loan creates tax-exempt income, so although you don’t need to report the income from the forgiveness of your PPP Loan on Form 1040 or 1040-SR, you do need to report certain information related to your PPP Loan.

Rev. Proc. 2021-48, 2021-49 I.R.B. 835, permits taxpayers to treat tax-exempt income resulting from the forgiveness of a PPP Loan as received or accrued: (1) as, and to the extent that, eligible expenses are paid or incurred; (2) when you apply for forgiveness of the PPP Loan; or (3) when forgiveness of the PPP Loan is granted. If you have tax-exempt income resulting from the forgiveness of a PPP Loan, attach a statement to your return reporting each taxable year for which you are applying Rev. Proc. 2021-48, and which section of Rev. Proc. 2021-48 you are applying—either section 3.01(1), (2), or (3). Any statement should include the following information for each PPP Loan:

1. Your name, address, and ITIN or SSN;
A statement that you are applying or applied section 3.01(1), (2), or (3) of Rev. Proc. 2021-48, and for what taxable year (2020 or 2021) as applicable;
The amount of tax-exempt income from forgiveness of the PPP Loan that you are treating as received or accrued and for what taxable year (2020 or 2021); and
Whether forgiveness of the PPP Loan has been granted as of the date you file your return.

Write “RP2021-48” at the top of your attached statement.

As I read the instructions, this applies for any PPP loan for a sole proprietorship (Schedule C business) where there is PPP loan forgiveness in either 2020 or 2021.  So this includes people who had the loan forgiven last year!

As the IRS states, “The forgiveness of a PPP Loan creates tax-exempt income, so…you don’t need to report the income from the forgiveness of your PPP Loan on Form 1040 or 1040-SR….”  While Rev. Proc. 2021-48 states, “The IRS will publish form instructions for the 2021 filing season that will detail how taxpayers can report consistently with sections 3.01 through 3.03 of this revenue procedure,” wouldn’t the easiest and simplest method be that taxpayers must retain records of their forgiveness of their PPP loans and supply them to the IRS upon request?  Instead, we get more “make work” for tax professionals (and taxpayers) for 2021 tax returns.  It adds time to return preparation without giving IMHO the IRS any real benefit. 

SBA Releases New Simplified Forgiveness Form for PPP Loans

Wednesday, January 20th, 2021

When Congress passed the budget reconciliation act that contained the second Covid-related stimulus, one piece of the legislation was a simplified form for Paycheck Protection Program (PPP) loan forgiveness. Late yesterday, the Small Business Administration released the newest version of Form 3508S, the form that borrowers will need to complete.

This form can only be used if the amount of the PPP loan was $150,000 or less. The form is far easier to complete than the Form 3508EZ and should make applying for forgiveness far easier. It will likely be a few days before lenders are ready to accept the new Form 3508S. (One SBA website states that the Form 3508S can only be used for loans of $50,000 or less; that is wrong. I expect that website to also be corrected in the next few days.)

Expenses Associated with PPP Loans to be Fully Deductible

Monday, December 21st, 2020

According to this morning’s Wall Street Journal, businesses that took Paycheck Protection Plan (PPP) loans will be allowed to fully deduct expenses paid by the PPP loans. While a cap on the amount on this provision was originally inserted in the legislation, that cap was reportedly removed. Assuming this is accurate–the actual text of the legislation is not available as of this writing–this will be a big win for business owners who took PPP loans.

That’s not the only thing in the legislation, of course. There will be $600 stimulus payments, extension of unemployment and PUA benefits, and numerous other provisions. I’ll have more on this when the actual text is available.


Tuesday, November 24th, 2020

I sometimes listen to music while working. I have a ~900 song playlist I cycle through, and today White Lion’s Wait came on. (White Lion was a hair band–if you watch the linked video, you will see why.) And it seemed an entirely apropos title to this post: a post where we’re dealing with PPP loan forgiveness.

Earlier this year many businesses applied for Paycheck Protection Plan (PPP) loans. These seemed like a great deal for struggling businesses: Use them for payroll or certain other expenses (rent, utilities, etc.) and the loan would be forgiven. It was money from the US government to help small businesses make their way through Covid.

Congress’s intent (at least according to Senators Grassley and Wyden) was that businesses would be able to receive the loan, have the loan forgiven (assuming the expenditures were used as noted above), and the loan would not be considered income. The IRS, though, had another idea. Sure, the loan isn’t income; however, the expenses would not be deductible: the IRS noting that per Section 265 of the Tax Code if you have nontaxable income, expenses used in production of that income are not deductible. Senators Grassley and Wyden complained earlier this summer when the IRS first announced this. The IRS double-downed on this, releasing Revenue Ruling 2020-27 and Revenue Procedure 2020-51 confirming the IRS’s initial position. Senators Grassley and Wyden complained again.

A few tax professionals have argued the IRS got this wrong. Unfortunately, a literal reading of the Tax Code verifies what’s in Section 265 of the Tax Code. That said, Congress can override this. They could, for example, write a new law stating that PPP loans that are forgiven do not cause the expenses used in production of that income to be taxable. Indeed, there is legislation pending in Congress to do just that. Whether such legislation passes is another question though. The legislation does have bipartisan support, so there is a good chance it passes either in the “lame duck” session or early next year.

So what should someone do who received a PPP loan? Generally, they should wait to request forgiveness. (An exception is a sole proprietorship who used the funds for replacement of the owner’s ‘pay’. Because such pay isn’t taxable, there are no expenses which would be non-deductible.) Generally, you have ten months from the end of the PPP covered period to request forgiveness. We’re likely to have clarity on this sooner rather than later (I’m hopeful we’ll know by February), so if you can wait do so.

Indeed, given the rules and procedures the IRS came up with in Revenue Ruling 2020-27 and Revenue Procedure 2020-51 it’s a good idea to know what the exact forgiveness is before filing your 2020 return…and that could be five months after applying for forgiveness. As always, it’s better to extend than amend. Yes, there are going to be quite a few extensions filed by PPP loan recipients in 2021.

PPP: When Free Money Isn’t So Free

Friday, May 1st, 2020

The Paycheck Protection Program (PPP) loans seem too good to be true. You get money for paying employees and necessary expenses, and they might not have to be repaid! It’s free money.

Well, not so fast.

Yesterday, the IRS released Notice 2020-32. The notice, which runs seven pages, can be boiled down to one very long sentence:

Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.

In English, if your PPP loan is forgiven, you cannot take a deduction for any expenses related to the income that isn’t taxable. Now, how forgiveness is determined isn’t certain at this point, but the IRS’s view is that expenses that result in tax-exempt income aren’t deductible.

So let’s say you have a loan that is forgiven of $10,000. Is it better to pay back the loan (the interest rate is 1%), and not lose the tax credits for employee retention, or lose the business expenses and tax credit? Since we don’t yet know the full details on forgiveness it’s not possible to say much more here, but I strongly suspect the answer will be, “It depends.”

Senator Chuck Grassley (R-Iowa), chair of the Finance Committee, wasn’t happy with the IRS decision. He’s quoted in the Wall Street Journal: “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible. This notice is contrary to that intent.” So it’s possible Congress will override the IRS’s view on this. We will just have to wait and see.

Professional Gamblers (and Other Gambling Businesses) Now Eligible for PPP Loans

Friday, April 24th, 2020

The Small Business Administration today released new guidance on the Paycheck Protection Plan (PPP) loans. Included in the guidance is an FAQ that states:

Are businesses that receive revenue from legal gaming eligible for a PPP Loan?

A business that is otherwise eligible for a PPP Loan is not rendered ineligible due to its receipt of legal gaming revenues, and 13 CFR 120.110(g) is inapplicable to PPP loans. Businesses that received illegal gaming revenue remain categorically ineligible. On further consideration, the Administrator, in consultation with the Secretary, believes this approach is more consistent with the policy aim of making PPP loans available to a broad segment of U.S. businesses.

This means that as of today professional gamblers are now eligible for PPP loans. If you’re a professional gambler and are out of business, now is the time to apply with your bank. While there was additional funding for PPP loans approved this week, it will likely be used up quickly. Do note that if you partake in any illegal gambling activities you remain ineligible for PPP loans.

Additionally, small pubs with gambling activity (very common here in Las Vegas) are eligible for PPP loans.