Report PPP on tax form

[pasb]

How to report PPP income on 1120 S form, do you fill in Book and Tax differences on Schedule M-1 for 1120 S form ?

[New York Enrolled Agent]

How to report PPP income on 1120 S form, do you fill in Book and Tax differences on Schedule M-1 for 1120 S form ?

Was the loan forgiven in 2020?

[pasb]

apply loan in 2020, received fund in 2020, by Blue Vine Financial Tech, as of today 4/1/2021 still no guideline for forgiven ( not forgiven yet )

[New York Enrolled Agent]

Well you said it yourself - not forgiven. Thus, it appears on the balance sheet for what it is - a loan.

[BOB W]

If you need basis for this return, I've read (no cite) that forgiven or will be forgiven can be reported as as forgiven. Thus can be reported as tax exempt income on 1120S return.

[New York Enrolled Agent]

If you need basis for this return, I've read (no cite) that forgiven or will be forgiven can be reported as as forgiven. Thus can be reported as tax exempt income on 1120S return.

You're in the tax business - opinions (well you know the saying about body parts) are not especially useful. Without a cite, you have a loan.

You don't think there is a HUGE difference between being forgiven or will be forgiven (or even may not be forgiven)? When exactly will pasb's client loan be forgiven? My crystal ball is not working today. Apparently yours is.

The facts are the facts. I'd like to know how you've established substantial authority for your position so that pasb can sign the 1120-S without fear of penalty?.

[rbynaker]

At this point I would hold on to any return where basis and PPP timing is a problem. The AICPA is aware of this and has requested guidance from the IRS:

https://www.journalofaccountancy.com/news/2021/mar/ppp-loan-forgiveness-s-corps-partnerships-guidance-needed.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=17Mar2021

While I don't think there's anything directly on-point in case law (we're literally in "unprecedented" times), there are plenty of cases that the IRS has won based on an "all events test" acceleration of taxable income. It's not clear whether or not such rules apply to non-taxable income. For most of last year the IRS was hanging their hat on the concept that expenses paid with PPP loans that were expected to be forgiven would not be deductible (regardless of whether forgiveness was in the current tax year or a future one). It remains to be seen whether what's good for the goose is good for the gander.

[BOB W]

The AICPA is recommending that Treasury and the IRS issue guidance stating that the proper period for the inclusion of the tax-exempt income due to Section 276 is when the PPP borrower pays or incurs qualifying expenses during the covered forgiveness period. The AICPA is also asking that the guidance state that the IRS does not intend to challenge treating the loan forgiveness as a ministerial act.

[New York Enrolled Agent]

Obviously the AICPA realizes that without approval from Treasury the PPP is a loan until (and if) it is forgiven. If Treasury want to adopt such rules than a taxpayer is empowered to recognize the tax-free income in 2020. Otherwise, there is no basis to make that recognition.

The Supreme Court has ruled taxes are not done on a "transactional" basis. In Sanford & Brooks 282 US 359 you find:

All the revenue acts which have been enacted since the adoption of the Sixteenth Amendment have uniformly assessed the tax on the basis of annual returns showing the net result of all the taxpayer's transactions during a fixed accounting period, either the calendar year, or, at the option of the taxpayer, the particular fiscal year which he may adopt.

[BOB W]

The IRS also issued a safe harbor where a taxpayer can claim a deduction in the taxpayer’s tax year beginning or ending in 2020 for certain otherwise deductible eligible expenses if (1) the eligible expenses are paid or incurred during the taxpayer’s 2020 tax year; (2) the taxpayer received a loan guaranteed under the PPP that at the end of the taxpayer’s 2020 tax year, the taxpayer expects to be forgiven in a tax year after the 2020 tax year; and (3) in a subsequent tax year, the taxpayer’s request for forgiveness does not subsequently occur either because the forgiveness application is denied in full or in part or because the taxpayer has decided not to apply for forgiveness. If the deductions are desired in 2020 under these circumstances, they can be claimed on (1) a timely-filed (including extensions) original tax, or information, return for the 2020 tax year, or (2) an amended 2020 tax, or information, return (or an administrative adjustment request for partnerships). Alternatively, the deduction can be claimed on a timely filed original tax or information return for the subsequent taxable year.

IRS Clarifies Timing Of PPP Expense Deductions In Relation To Loan Forgiveness (uhy-us.com)

[New York Enrolled Agent]

The IRS also issued a safe harbor where a taxpayer can claim a deduction in the taxpayer’s tax year beginning or ending in ]

Notwithstanding there is a difference between deductions and income, this completely aligns with what I'm suggesting in post #9.

GUIDANCE was issued. This guidance was not a Tax Book message board user's opinion but a written document from the Internal Revenue Service which constitutes authority. See Reg. §1.6662-4(d)

The principal authors of this revenue procedure are Sarah Daya and Charles Gorham of the Office of Associate Chief Counsel (Income Tax & Accounting).

[BOB W]

My post was to prove that I read in the past about taxpayer's PPP IS FORGIVEN OR EXPECTS TO BE FORGIVEN. I now agree that it only relates to expensing of PPP related expenses, not the treatment of PPP loan proceeds.