Recently, the Internal Revenue Service (IRS) released new Paycheck Protection Program (PPP) loan forgiveness guidance addressing timing, partner and consolidated group member basis adjustments and filing of amended partnership returns. Doeren Mayhew’s PPP advisors outline the new updates to ensure your organization stays up-to-date.
Business owners with PPP loans can treat tax-exempt income from the partial or full forgiveness of the PPP loan as follows:
The timing also applies when tax-exempt income from a partially or completely forgiven PPP loan is treated as gross receipts under a federal tax provision. In the event a taxpayer received loan forgiveness in a lesser amount than what they treated as tax-exempt income, the taxpayer must file an amended return or administrative adjustment request as needed.
When covered partnerships meet specific requirements, the IRS considers the allocation of amounts treated as tax-exempt income and allocation of deductions as in accordance with Code Sec. 704(b). Each partner’s basis in the partnership’s interest increases by their distributive share of tax-exempt income and lessens by their distributive share of deductions. When specific conditions are met, the IRS treatment typically coincides with:
As for consolidated group members, the IRS has indicated it will treat any excluded gross income amounts under§7A(i) of the Small Business Act, §276(b) of the COVID Tax Relief Act or §278(a)(1) of the COVID Tax Relief Act, as tax-exempt income for purposes of Reg. §1.1502-32(b)(2)(ii) investment adjustments. To apply the treatment, the consolidated group simply needs to attach a signed statement to its consolidated return.
Partnerships subject to the centralized partnership audit regime that filed a Form 1065 (U.S. Return of Partnership Income) and provided all necessary Schedules K-1 for tax years ending after March 27, 2020, and before Rev. Proc. 2021-50 was released can file amended partnership returns and submit amended Schedules K-1 by Dec. 31, 2021. Within the amended return, partnerships should include any tax changes made as a result of Rev. Proc. 2021-48 or Rev. Proc. 2021-49.
Certain partnerships under the Bipartisan Budget Act (BBA) may submit additional changes as needed on their amended returns by writing “Filed pursuant to Rev. Proc. 2021-50” at the top of the return. They must also note this on all amended Schedules K-1 provided to partners.
Pass-through partners will not necessarily follow these rules. Partnerships currently under IRS examination that would like to file an amended return must communicate this to their revenue agent.
With these new loan forgiveness guidelines being released, there is much for business owners and partnerships to consider. Be sure to contact Doeren Mayhew’s dedicated PPP accountants with any questions or for assistance filing an amended return.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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