PPP Update: Taxability of The PPP Loan Forgiveness

We just wanted to give you all an update as to the taxability of the PPP loan forgiveness (currently a 2020 tax event regardless of when your PPP loan is forgiven). As of today, it is taxable, however, there is some movement in Congress to override the IRS to make the forgiveness of the PPP loan proceeds not taxable.

Here is how our firm is handling our own situation, assuming that we will not have any definitive answers from Congress by the end of the first quarter of 2021:

    • For 2020 projection purposes, we are assuming that our PPP loan proceeds will be taxable, and we will pay estimated taxes based on that assumption.  Or, at least pay in 2020 estimates to meet the estimated tax “safe harbors” (paying in 110% of 2019’s actual tax liability or 90% of the 2020 projected taxes).
    • We will be putting our firm’s tax returns on extension, to buy some time, with the hope that Congress will finalize this issue prior to September 15 (the extended due date of partnership and S corporation returns) and prior to October 15 (the extended due date of personal tax returns).
    • If clients choose to have their business returns (partnerships and S corporations) filed by the original due date of March 15, then the PPP loan proceeds will be included in income for those filed returns.  If Congress overrides the IRS subsequent to the March return file date, then amended business returns will be required to be filed (and personal returns as well since the income from partnerships and S corporations flow through to the personal returns).  This would also hold true for personal returns originally due April 15 for self-employed clients, who would then have to file amended personal returns if Congress were to override the IRS (if applicable).

 

We have been told that there is a “strong” probability that Congress will act to override the IRS, but we will have to use the laws and the information that exists as of today, in the meantime.

Important tidbit:  FTEs are not a requirement for PPP loan forgiveness for businesses that were mandated by any government health agencies as to the number of customers that they could service during the pandemic (and/or for the businesses that were required to be totally shut down for a long period of time during the pandemic).  This would include restaurants, gyms and related businesses, retail stores, etc.  There is a box to check within the PPP loan forgiveness application that can be checked which would result in the elimination of having to meet the FTE requirement.