New Revenue Procedures Will Impact Tax Treatment of Loan Forgiveness
On Thursday, Nov. 18, 2021, the Internal Revenue Service (IRS) released three new revenue procedures regarding the treatment of taxpayers’ excluded amounts of gross income related to the forgiveness of received loans from the Paycheck Protection Program (PPP). The revenue procedures address important issues about tax treatment of the loans, including timing and receipt of loan forgiveness, partnership allocations, stock basis adjustments and amended returns.
Below are the highlights from each revenue procedure:
Revenue Procedure 2021-48
States that the receipt of any PPP forgiveness tax-exempt income should be considered received or accrued when any of the following conditions are met:
- Any expenses eligible for forgiveness are paid or incurred.
- The taxpayer has filed an application for PPP loan forgiveness.
- Forgiveness is granted for the PPP loan.
Additionally, if a PPP loan is only partially forgiven, adjustments should be made accordingly to any amended returns, information returns or administrative adjustment requests.
Revenue Procedure 2021-49
Provides guidance for partners and partnerships when allocating distributive shares of any PPP loan forgiveness tax-exempt income and deductions as a result from any expenditures attributed to the use of a forgiven PPP loan. The guidance also states how adjustments can be made to partnership interests per Section 705. Corporations are also provided guidance for stock basis adjustments per Section 1502.
Revenue Procedure 2021-50
Establishes the process for certain partnerships to file amended returns (Forms 1065 and Schedules K-1) for tax years ending after Mar. 27, 2020, on or before Dec. 31, 2021. These partnerships would be eligible if the aforementioned forms for the partnership tax year are filed and other requirements are met, per the new revenue procedures.
To find out how new PPP loan forgiveness guidance can impact you and your business, reach out to your Windham Brannon advisor, or contact Gary Gruner.
