With all this talk about forgiveness, you would think we all did something wrong. That is certainly not the case! Thankfully, most of you who are reading this have survived this unprecedented upheaval and are now planning a bright future. Therefore, we are pleased to share this information.
The IRS has finally issued guidance on when and how to recognize the tax-exempt income related to PPP loan forgiveness. Revenue Procedures 2021-48, 2021-49, and 2021-50 were issued in the latter part of 2021. In this guidance, the IRS discusses three acceptable periods for recognizing the exempt forgiveness income.
The earliest period for recognizing and reporting the exempt income is when the PPP funds are used toward eligible expenses. This means as they are spent. For most PPP loan recipients, this would be the calendar year 2020 for the first draw and calendar year 2021 for the second draw. If your first draw was received later in 2020 or 2021, or the business is a fiscal or non-calendar year reporter, then this period may cover two different tax reporting periods.
The next possible time for reporting the tax-exempt forgiveness income would be the period in which the forgiveness application was submitted. For example, if you requested forgiveness in November 2020, using this approach, the business would report the tax-exempt income on the tax return including November 2020. This would be tax year 2020 for calendar year reporters.
The last possible time for reporting the tax-exempt forgiveness income is the period in which the forgiveness was granted.
What if full forgiveness was reported, but actual forgiveness was limited to a lesser amount?
If you originally reported the full amount of the PPP loan as exempt income and it was only partially forgiven, the IRS requires an amended return to correct the reporting. If the entity amending the return is a flow-through entity such as a partnership or S corporation, the business should issue amended forms K-1 and the recipients should amend their returns as well.
For 2021 business returns, there are also additional reporting requirements for how to report and disclose the exempt income from PPP loan forgiveness.
Check with your tax preparer to see how this might affect your business and personal income tax returns.
This information is general in nature and is not intended as legal, accounting, or tax advice provided by BUSBooks LLC to the reader. This material may not apply to the reader’s specific circumstances and may require consideration of additional factors. BUSBooks LLC recommends that the reader contact a tax professional before taking any action based on this information. BUSBooks assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect this information.
UMA Member Tracy Fickett, CPA, operates BUSBooks, a specialty accounting firm dedicated to the motorcoach industry. If you have a question, you can reach her at firstname.lastname@example.org.
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