Revenue Procedures Afford Flexibility in Tax Treatment of PPP Loan Forgiveness

On November 18, 2021, the Internal Revenue Service released Revenue Procedures 2021-48, 2021-49, and 2021-50 to provide flexibility for the tax treatment of the tax-exempt income arising from forgiveness of a loan made by the Small Business Administration (“SBA”) pursuant to the Paycheck Protection Program (“PPP”).

Revenue Procedure 2021-48 provides alternatives regarding the timing of the receipt or accrual of the tax-exempt income arising from PPP loan forgiveness. The Procedure permits the taxpayer to treat such income as received or accrued:

1. When the eligible expenses are paid or incurred;
2. When an application for PPP loan forgiveness is filed; or
3. When PPP loan forgiveness is granted

Revenue Procedure 2021-49 provides that partnership should allocate such tax-exempt income in a manner that reflects the partners’ overall economic interests in the partnership as determined in accordance with the “partners interest in the partnership” rules set forth in the Section 704(b) regulations.

Revenue Procedure 2021-50 allows a partnership governed by the Bipartisan Budget Act of 2015 partnership tax audit rules to amend its 2020 tax return to reflect the options set forth in Revenue Procedure 2021-48. To take advantage of this procedure, the partnership must file the amended return, and provide new Schedules K-1, by December 31, 2021. Accordingly, clients may want to check with their tax advisor prior to the end of the year to determine whether such an amendment would be beneficial.

The tax treatment of PPP forgiveness has shifted multiple times over the short lifetime of the program. If you have any questions regarding the tax treatment of SBA PPP loans, please contact a Baird Holm LLP attorney.