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Volume 11, Issue 15
For distribution 1/10/22; publication 1/13/22
Updated Guidance - Paycheck Protection Program (PPP) Tax Treatment
On November 18th, 2021, the IRS released three new revenue procedures – Rev Procs. 2021-48, 2021-49, and 2021-50 – to provide further guidance on the tax treatment of Paycheck Protection Program (PPP) amounts that are excluded from gross income as a result of loan forgiveness. This guidance was issued due to several uncertainties surrounding the tax implications of PPP loan forgiveness, including the timing/receipt of loan forgiveness, how partners/partnerships should allocate PPP forgiveness as exempt income as well as the associated deductions of expenses incurred with the funds, and the process for certain partnerships to file amended returns.
Rev. Proc. 2021-48
This statement of procedure indicates that the receipt of PPP forgiveness tax-exempt income may be treated as received or accrued when one of the following conditions is met:
- Expenses eligible for forgiveness are paid or incurred
- An application for loan forgiveness is filed
- Loan forgiveness is granted
Furthermore, the issue of partial forgiveness is addressed, as it pertains to adjustments that must be made on amended returns, information returns, or administrative adjustment requests for certain partnerships. These adjustments must be made for the tax year in which the taxpayer treated the forgiveness tax-exempt income as received or accrued. The Rev. Proc. also clarifies that while this tax-exempt income is excluded from taxpayers’ gross income, it must be included in gross receipts for purposes of certain Federal tax provisions (for example, the gross receipts test for determining whether a C corporation or partnership may use the cash method of accounting for tax reporting purposes)
Rev. Proc. 2021-49
This guidance is specific to partnerships and how they may allocate deductions and tax-exempt income in connection with PPP loan forgiveness among partners. Some of the provisions in this guidance are as follows:
- Partnerships may allocate the expenses in any matter in accordance with the partners’ interests in the entity.
- The allocation of the tax-exempt income is based on the same allocation rules of the qualifying expenses.
- There are corresponding adjustments that must be made with respect to partners’ bases in their partnership interests.
Rev. Proc. 2021-50
Under this Rev. Proc., IRS specifies that certain eligible partnerships under the Bipartisan Budget Act of 2015 (BBA) may file amended Forms 1065 (and provide amended Schedules K-1 to partners) on or before December 31, 2021, to adopt the guidance presented in Rev. Procs. 2021-48 and 2021-49. This allows such partnerships to avoid filing an Administrative Adjustment Request (AAR) to make the adjustments, which is generally how such partnerships are required to handle changes after a return has been filed. This may be more favorable due to administrative ease as well as other possible advantages, including faster refunds for partners (if applicable).
Timing, Timing, Timing
All this sounds crazy technical and it is! The bottom line is that these revenue procedures are very taxpayer-friendly, providing several options across years to minimize tax liability for taxpayers who obtained PPP forgiveness. There are multiple tax planning scenarios to consider, so feel free to contact us so we can go through them with you in a session customized to your situation.
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Our latest blog: “Updated Guidance - Paycheck Protection Program (PPP) Tax Treatment” is available now! Subscribe here: [link]
On November 18th, 2021, the IRS released three new revenue procedures – Rev Procs. 2021-48, 2021-49, and 2021-50 – to provide further guidance on the tax treatment of Paycheck Protection Program (PPP) amounts that are excluded from gross income as a result of loan forgiveness. Find out more in our latest blog article: [link]
Our latest blog article reviews the updated guidance for the Payment Protection Program (PPP) tax treatment. Get instant access here: [link]
The new guidance on PPP tax treatment was issued due to several uncertainties surrounding the tax implications of PPP loan forgiveness, including the timing/receipt of loan forgiveness, how partners/partnerships should allocate PPP forgiveness as exempt income, and the process for certain partnerships to file amended returns. Learn more here: [link]
The Rev. Proc. 2021-48 statement of procedure indicates that the receipt of PPP forgiveness tax-exempt income may be treated as received or accrued when one of the following conditions is met:
- Expenses eligible for forgiveness are paid or incurred
- An application for loan forgiveness is filed
- Loan forgiveness is granted
Learn more here: [link]
DID YOU KNOW… Rev. Proc. 2021-50 allows partnerships to avoid filing an Administrative Adjustment Request (AAR) to make adjustments, which is generally how such partnerships are required to handle changes after a return has been filed. Find out more here: [link]
The Rev. Proc. 2021-49 guidance is specific to partnerships and how they may allocate deductions and tax-exempt income in connection with PPP loan forgiveness among partners. Learn more in our latest blog article: [link]
Do you know how the three new IRS Revenue Procedures regarding the tax treatment of Paycheck Protection Program (PPP) could affect you? Sign up for our newsletter to learn more: [link]
