IRS Issues Further Guidance on Tax Treatment of PPP Loan Forgiveness

November 18, 2021

The IRS recently issued three revenue procedures (Rev. Procs. 2021-48, 2021-49 and 2021-50) regarding the treatment of amounts excluded from taxpayers' gross income connected to the forgiveness of Paycheck Protection Program (PPP) loans.

Rev. Proc. 2021-48 discusses the timing of the receipt of PPP forgiveness tax-exempt income. The procedure states that taxpayers may regard income as received or accrued when expenses eligible for forgiveness are paid or incurred, an application for PPP loan forgiveness is filed or PPP loan forgiveness is granted. The procedure also addresses adjustments that must be made on an amended return, an information return or an administrative adjustment request.

Rev. Proc. 2021-49 specifies how partnerships may allocate among partners under Sec. 704(b) their distributive share of PPP loan forgiveness tax-exempt income and deductions resulting from expenditures attributable to the use of forgiven loans and make adjustments to the partners' bases in their partnership interests under Sec. 705. For corporations, the procedure offers guidance concerning adjustments of stock basis by subsidiary members of consolidated groups under Sec. 1502 and Regs. Sec. 1.1502-32. The procedure's provisions also apply to certain grant proceeds as well as subsidized payments of certain interest and fees.

Rev. Proc. 2021-50 allows eligible BBA partnerships to file amended Forms 1065 and issue amended Schedules K-1 for the above purposes for tax years ending after March 27, 2020. Amended returns and Schedules K-1 must be filed or furnished on or before Dec. 31, 2021. The procedure also details the eligibility requirements for BBA partnerships.