Got an 1120S client who has an SBA Loan. Client has continued to make all of his loan payments to the bank through which the SBA Loan was processed. However, SBA refunded six payments (May-Oct 2020) to the client. *SBA issued the refund through the client's bank* So essentially, the SBA covered these six payments for the client. The client's loan transaction history with his bank shows the payments made with the appropriate decrease in principal for each payment. Apparently, these refunds are related to Section 1112 of the CARES Act. I've read the SBA Procedural Notice but of course, this notice does not pertain to the tax ramifications of the refunds. As a result, my question is this: Are the refund payments considered to be 'Other Income' or would the refunds be non-taxable and be an adjustment on on Sch M-1?
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Was this SBA loan part of the PPP program?This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content. -
No, this is not the PPP Loan. From what I can see it must be a different provision in the CARES act.Comment
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The second stimulus, enacted on December 27, 2020, amended the CARES Act to provide that the SBA's payments of principal, interest, and fees on behalf of the borrower on SBA loans are not taxable income to the borrower and expenses paid by the borrower with subsidized SBA loan proceeds are fully deductible. In IRS Notice 2021-06, the IRS states Section 278(c)(1) of the COVID Relief Act provides that such a payment is not included in the gross income of the person on whose behalf the payment is made. Section 278(c)(2) provides that no deduction shall be denied by reason of the exclusion of the loan payments from gross income.
Peggy SiouxComment
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Here is the IRS information: https://www.sba.gov/document/informa...-under-sectionJiggers, EAComment
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