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PPP Loan Forgiveness - 1120 Tax Return

Factswrite
Level 1

I have a C Corp whose fiscal year ends June 30.  How do I report the PPP loan forgiveness if granted by filing date?

I assume I reduce Wage, Utilities, and Rent expense.  However, the Wage expense will not reconcile with the 941.  Would I even care if it doesn't?

If the loan is forgiven after I file, do I need to amend or apply in the new fiscal year?

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5 Replies 5
abctax55
Level 15

As the return isn't even DUE for months, I'd wait & see what happens.  

There's a lot of discussion that the IRS dictate that forgiveness means the expenses aren't deductible will be overridden. 

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BobKamman
Level 13

Keep up with developments by subscribing to the Politico morning tax newsletter (it's free after 10am daily).  Today it reported

LET’S SEE WHAT DEVELOPS: Any final decisions on the PPP deduction issue is probably a ways off, but Sen. John Cornyn (R-Texas) is looking to push the envelope.

Cornyn, a senior Finance Committee member, told Jad Chamseddine of Tax Notes that he hoped to get unanimous consent in the Senate this week for a measure, S. 3612 (116), to allow companies to deduct expenses paid for by PPP loans.

To pull that off, Cornyn and other supporters would need to get rid of any remaining holds on the bill by today, which will cap off the Senate’s week in Washington. Cornyn told Tax Notes early in the week that supporters were “chipping away” at holds. But as of Wednesday, Cornyn’s office told Morning Tax that allowing the legislation to go forward still didn’t have unanimous support in the Senate.

Both Finance Chair Chuck Grassley (R-Iowa) and Sen. Ron Wyden of Oregon, the top Democrat on Finance, are sponsors of the PPP deduction bill, and also argue that Congress intended to allow businesses to benefit both from the loans and the tax write-offs to boost the economy. But their spokespersons largely deferred to Cornyn and his team on this week’s effort to get the measure through the chamber.

Getting a measure passed in the Senate by unanimous consent would certainly seem to be a show of force, but any final decision on the PPP deduction issue would also need to get the House and the administration on board. Mnuchin has said that allowing companies to write off expenses bought with PPP loans would be double dipping — backing the IRS, which disallowed those deductions.

johnoc
Level 3

I have same fiscal year issue June 30, 2020? Nearing end of extension and need to decide how to advise client. Currently IRS and Treasury positions indicate PPP expenses are not tax deductible. Loan forgiveness is not taxable.

Wondering if the new covid 19 relief package is going to make IRS and Treasury positions change. And whether these changes would affect the first PPP expenses in PPP package granted in 2020.

 

Sure hate to have to amend, but may not have any choice?

 

 

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BobKamman
Level 13

@johnoc Wondering if the new covid 19 relief package is going to make IRS and Treasury positions change

Well, yes, when Congress passes a bill and the President signs it into law, the IRS and Treasury change their positions.  At least that's how the system is set up to work.  

abctax55
Level 15

"...Currently IRS and Treasury positions indicate PPP expenses are not tax deductible" (my emphasis)

You might want to review the latest IRS notice (yesterday? Wed? 2021-02) regarding your statement.  And maybe look at the law signed on 12.27.20.

Edit:

Today’s guidance, Revenue Ruling 2021-02, reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.

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