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how do we answer the debt forgiveness question in business tax returns

vscpanm
Level 3

form 1120-S page 3 question 12 asks if there was any debt canceled or forgiven. If a PPP loan is forgiven do we answer yes and enter the amount forgiven? PPP loans for Fed purposes are exempt. States might not be. How do we answer if it is forgiven?

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6 Replies 6
sjrcpa
Level 15

I'm answering yes if it was forgiven in 2020.


ex-AllStar
dascpa
Level 9

I am not answering that way since debt forgiveness triggers COD income and the PPP does not apply. I think your way might generate potential correspondence from Uncle Sam.  Other opinions?

IRonMaN
Level 15

I would have leaned towards "no", because of the nature of the program, but Susan is smarter than me --------- I took the little bus to school.

ACME Taxes, Tatoos, Tires and Tomatoes (I had to get rid of the turtles - they kept running away)
sjrcpa
Level 15

I'm thinking it is called PPP Loan Forgiveness, ergo it is debt forgiven.

The tax treatment is different. 


ex-AllStar
JRC
Level 7

I will not be answering it Yes for the PPP monies. IRS is considering it to be Tax Exempt income to businesses for this reason to me it isn't considered Debt Forgiveness. Otherwise they would be requiring 1099-C's to be issued which they are told not to. Also by checking Yes then they would be looking for the Income reporting on it which will only confuse them. (My 2 cents)....

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vscpanm
Level 3

Ok after a bit of research I found the IRS Announcement 2020-12. in this announcement a paragraph reads "When all or a portion of the stated principal amount of a covered loan is forgiven because the eligible recipient satisfies the forgiveness requirements under section 1106 of the CARES Act, an applicable entity is not required to, for federal income tax purposes only, and should not, file a Form 1099-C information return with the IRS or provide a payee statement to the eligible recipient under section 6050P of the Code as a result of the qualifying forgiveness. The filing of such information returns with the IRS could result in the issuance of underreporter notices (IRS Letter CP2000) to eligible recipients, and the furnishing of such payee statements to eligible recipients could cause confusion. This announcement is intended to prevent any such confusion."

I believe the correct answer to these questions would be NO. This is not debt in the normal sense and should not be considered as such.