Forgiveness of a Paycheck Protection Program (PPP) Loan

The Office of Chief Counsel, Internal Revenue Service, recently issued guidance confirming the tax consequences of an improper forgiveness of a Paycheck Protection Program (PPP) loan. Where a taxpayer who does not factually satisfy the conditions for a qualifying forgiveness receives such forgiveness based on inaccurate representations, the taxpayer may not exclude the forgiven amount from gross income under section 636m(i) of the United States Code, Title 15 or section 276(b)(1) of the COVID-related Tax Relief Act of 2020.

The exclusion provisions apply only to a forgiven PPP loan that meets the conditions of a qualifying forgiveness and to loan recipients that are “eligible recipients.”

PPP loans forgiven based upon misrepresentations or omissions are, thus, includable in gross income and subject to additional income tax. Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.

Find more information on the IRS website.

Thank you to Michelle E. Espey for this week’s Tax Tracker post.