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PPP Loan causing distributions in excess of earnings
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taxartist
Level 2
03-27-2021
11:35 AM
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I am in this scenario with PPP crossing years: negative retained earnings, and distributions in excess of retained earnings as a result. Is it acceptable to defer the PPP expense recognition until 2021 (cash basis taxpayer)? Or, can I create shareholder loans (2 shareholders) to balance Schedule L? Or is there some other guidance you can provide to help me get this resolved? I just think it stinks if my clients have to have capital gains this year due to the PPP loan not being forgiven until 2021. I am positive they will be forgiven the entire amount, as it was only $41k, and we have complete documentation to satisfy any requirements. Thank you for any advice you can provide.
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pamdory
Level 8
03-27-2021
12:52 PM
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AICPA filed a request for guidance from IRS March 16th or 17th on the timing of reclassifying the PPP liability as tax-exempt income.
I'm holding some of these returns for this reason.
taxartist
Level 2
03-27-2021
04:07 PM
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Thank you! I will hold onto mine as well. I will just have to explain it is the best option, considering the consequences. The shareholders are chomping at the bit to get their K-1s, but patience is called for in this situation.
