On November 18, 2021, the Internal Revenue Service (IRS) issued a series of three revenue procedures (Rev Proc) to address various tax issues relating to PPP loan forgiveness.
Rev Proc 2021-48 addresses the timing of receipt of PPP forgiveness tax-exempt income. Taxpayers may treat amounts that are excluded from gross income (i.e., tax-exempt income) as received or accrued:
1. as eligible expenses associated with the PPP loan are paid or incurred,
2. when an application for PPP loan forgiveness is filed, or
3. when PPP loan forgiveness is granted.
To the extent tax-exempt income resulting from the PPP loan forgiveness is treated as gross receipts under a particular federal tax provision, this revenue procedure applies for purposes of determining the timing and, to the extent relevant, reporting of such gross receipts.
Rev Proc 2021-49 provides guidance for partners and their partnerships for adjusting the partners’ basis in their partnership interests when there is PPP loan forgiveness. A partner’s basis in its partnership interest is increased by the partner’s distributive share of tax-exempt income and is decreased by the partner’s distributive share of deductions from expenditures giving rise to the forgiveness of the PPP loan. In addition, the Rev Proc 2021-49 also provides guidance for basis adjustments for stock of subsidiary members of consolidated groups when there is tax-exempt income arising from forgiven PPP loans.
Rev Proc 2021-50 allows partnerships that are subject to the centralized audit rules under the Bipartisan Budget Act of 2015 to file amended returns, if necessary, instead of an Administrative Adjustment Request, to adopt the guidance set forth in Rev Proc 2021-48 and Rev Proc 2021-49. Amended returns under this revenue procedure must be filed by December 31, 2021.
If you have any questions, please contact us at firstname.lastname@example.org regarding your tax situation.
You may also be interested in our article about PPP expense deductibility.