IRS Provides Further Clarifications on Tax Treatment of PPP

The IRS recently released several revenue procedures to provide clarity around the tax treatment in connection with forgiveness of Paycheck Protection Program (PPP) loans. The issues addressed by the IRS are threefold:

•  Timing issues: Taxpayers may treat PPP income as received or accrued when any of the conditions are met: (1) expenses eligible for forgiveness are paid or incurred; (2) an application for PPP loan forgiveness is filed; or (3) PPP loan forgiveness is granted. This provides a wide range of options and allows for all likely scenarios.

•  Allocation issues: Partners and partnerships may allocate their distributive share of PPP loan forgiveness tax-exempt income, the related deductions and make corresponding adjustments to the partners’ bases in their partnership interests.

•  Amended returns: The IRS allows partnerships to file amended Forms 1065 and issue amended Schedules K-1 for the above purposes for tax years ending after March 27, 2020. These amended returns and Schedules K-1 must be filed or furnished on or before December 31, 2021.

For more information on these Revenue Procedures: