PPP loan forgiveness statement options

[preparer227]

On the PPP loan forgiven statement you have 3 options    Is there a certain option to take?  Does it matter if all was forgiven 

[Frustrated-in-IL]

Yes, it can matter.

There can be basis issues which are affected by the selection of each option.  Congress overruled the IRS and essentially said PPP loan forgiveness will be treated as tax-exempt income increasing basis and allowing the deduction of expenses paid with PPP proceeds.  The IRS is giving you three options as to when to consider the tax-exempt income as increasing basis.

For example, a big loss in 2020 may have resulted in basis being reduced to $0.  If you got a 1st PPP loan in 2020 which was not forgiven until 2021, option (1) will allow more of that loss to be deductible in 2020 as basis will be considered increased as the expenses were paid in 2020.  If forgiveness was applied for in 2020 but wasn't granted until 2021, option (2) will allow all of the forgiven amount to increase basis in 2020.  Option (3) won't increase basis until forgiveness is actually granted. 

The timing of the basis increase for a 2020 PPP loan forgiven in 2021 gets more complicated if a 2020 loss reduced basis to $0 AND results in an NOL, which for 2020 needed to go back.  But if there is no basis, I'm not sure how it can go back.  There are also the same issues with 2021 PPP loans which are being forgiven in 2022 (or any PPP loans being forgiven in a subsequent year).  So the choice is important in these types of situations.

I would guess if there are no basis issues, and no NOL issues, it probably does not matter which choice you make.