Businesses that received Paycheck Protection Program (PPP) loans can apply for forgiveness once all loan proceeds for which they are requesting forgiveness have been used. On November 18, 2021, the IRS issued a series of three Revenue Procedures addressing the tax effects when a PPP loan is forgiven.
Here’s a brief rundown of each.
Revenue Procedure 2021-48 provides that taxpayers may treat amounts that are excluded from gross income (tax-exempt income) in connection with the forgiveness of PPP loans as received or accrued:
1. As eligible expenses are paid or incurred,
2. When an application for PPP loan forgiveness is filed, or
3. When PPP loan forgiveness is granted.
To the extent tax-exempt income resulting from the forgiveness of a PPP loan is treated as gross receipts under a particular federal tax provision, the revenue procedure applies for purposes of determining the timing and, to the extent relevant, reporting of such gross receipts.
Revenue Procedure 2021-49 provides guidance for partnerships and consolidated groups regarding amounts excluded from gross income and deductions relating to the PPP and certain other COVID-19 relief programs. More specifically, this procedure provides guidance for partners and their partnerships regarding allocations under the tax code and the corresponding adjustments to be made with respect to the partners’ bases in their partnership interests.
This procedure also provides guidance regarding the corresponding basis adjustments for stock of subsidiary members of consolidated groups as a result of tax-exempt income arising from certain forgiven PPP loans, grant proceeds, or subsidized payment of certain principal, interest, and fees.
Revenue Procedure 2021-50 allows eligible partnerships subject to the centralized audit rules under the Bipartisan Budget Act to file amended Forms 1065, U.S. Return of Partnership Income, and furnish amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc., on or before December 31, 2021, to adopt the guidance set forth in Revenue Procedure 2021-48 and Revenue Procedure 2021-49 if certain requirements are met.
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