Further guidance issued on tax treatment of PPP loan forgiveness

Further guidance issued on tax treatment of PPP loan forgiveness
Written by Publishing Team

In three revenue actions (Rev. Procs.2021-48, 2021-49, and 2021-50), the IRS provided guidance Thursday on processing amounts excluded from taxpayers’ gross income in connection with Paycheck Protection Program (PPP) loan forgiveness. The AICPA requested guidance in a letter dated March 15, 2021 to the IRS.

While it is excluded from a taxpayer’s gross income, tax-exempt income from the PPP loan forgiveness must be included in Gross Receipts for certain other purposes, including the gross receipts test under Sec. 448(c) for a “small business taxpayer” who qualifies to use the cash method of accounting and several other generally favorable tax accounting provisions. Another such inclusion is for some of the thresholds for filing requirements for tax-exempt organizations under Sec. 6033.

As suggested by the AICPA, a range of issues are addressed in the guidance, including the timing for tax purposes when PPP loan forgiveness is received or accrued, how partners and partners can allocate PPP exemption as exempt income and allocate deductions from attributable expenses To use the proceeds of exempted PPP loans, how eligible partnerships subject to scrutiny under the Bipartisan Budget Act 2015, PL 114-74, (BBA Partnerships) may submit the amended Forms 1065, US Partnership Income Return, and version of the revised K-1 schedules, Partner’s share of income, deductions, credits,, in accordance with these procedures.

Reverend Brooke. 2021-48: Timing issues

Reverend Brooke. 2021-48 covers the timing of receipt of tax-exempt income from a PPP. Taxpayers may treat such income as received or accrued upon (i) paying or incurring expenses eligible for the exemption; (ii) submit an application for exemption from the PPP loan; or (iii) the PPP loan exemption is granted. The revenue procedure also describes the adjustments to be made to the adjusted return; Return of information or, for certain partnerships, an administrative adjustment request, when the PPP loan is only partially waived.

Reverend Brooke. 2021-49: Allocation Issues

Reverend Brooke. 2021-49 describes how partners and partnerships can allocate between partners under Sec. 704(b) their distributive share of the PPP loan tax-exempt income and deductions from expenses attributable to the use of exempt PPP loans and making corresponding adjustments to the foundations of the partners in their partnership interests under the second. 705.

For companies, the revenue procedure provides guidance regarding similar adjustments to the basis of inventory by sub-members of groups consolidated under the second. 1502 and Regs. second. 1.1502-32. The provisions of this revenue procedure also apply to certain grant proceeds and subsidized payments of certain interest and fees.

Reverend Brooke. 2021-50: Adjusted returns

Reverend Brooke. 2021-50 Eligible BBA partnerships are allowed to file the Revised Forms 1065 and issue the Revised Schedules K-1 for the purposes listed above for tax years ending after March 27, 2020. These Revised K-1 returns and schedules must be filed or filed on or before December 31, 2021.

BBA partnerships are eligible if they file Forms 1065 and furnished K-1 schedules for the partnership tax year ending after March 27, 2020, and before the issuance of the Rev. Procs. 2021-48 and 2021-49 and meet some of the other listed requirements for these revenue actions.

Paul Bonner ( he hollow Senior Editor.

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