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FORGAVE PPP REPORTING


KATE GOLI

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Hi there :)   Can any one help with this?  I search all over and still not sure how to report the PPP forgiven amount.  Should I treat it as other tax exempt interest or other tax exempt income?  Should it be reported into F1040, or just increase the basis, because I feel it may involve AMT tax.  Thank you.  :)

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Made me change my mind, this was posted on another forum:

To put in  Paid in Capital would leave it on the balance sheet.  The forgiveness is income not included in AAA because it's tax-exempt (call it OA if you want).  The expenses do not reduce AAA because the are RELATED to tax-exempt income, so put them in your OA account if you use that.  If your corporation was ever a C corp, or if you lose your S election later, accounting for it incorrectly could come back to roost.

Actually, this was proposed on the Arizona list serve, and here is Ed Z's response:

First, the tax law doesn't discuss the concept of paid-in capital--it's an accounting concept.  The December 27 law and IRS Notice 2020-27 pretty clearly all this tax exempt income.  And, finally, if this thing is a "capital contribution" and not tax exempt income, then the expenses would no longer be expenses related to tax exempt income--which is a disaster if you either have EA&P *OR* at some point terminate your S election (either intentionally or by accident).  You are "short" AAA vs. cash you've had.

That is, I see no advantage to putting it into that account and a whole lot of potential problem.  And certainly don't see anything that requires this treatment.

So I would strongly discourage going that route.

But it doesn't matter what any CPE instructor says--what matters is what the law says.  So find me the "paid-in capital" treatment in the law when the law pretty clearly says treat it as tax exempt income and treating it that way is pretty much mandated by SCOTUS's Gitlitz decision.

We don't worry about running municipal bond interest (or Section 108 exclusions) directly to retained earnings or paid in capital--I'm not sure why everyone seems to want to complicate this one.  We do know how to deal with tax exempt income in an S corporation (see my constant references to Section 1368(e)(1)).

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8 minutes ago, Randall said:

The forgiveness is income not included in AAA because it's tax-exempt (call it OA if you want).  The expenses do not reduce AAA because the are RELATED to tax-exempt income, so put them in your OA account if you use that. 

Yes, for an S corp I'd use the Other Adjustments Account.

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  • 2 weeks later...

ATX has a tab for PPP Loan forgiveness (S Corp).  Two entries, one for the loan amount forgiven and one for the expenses used for business.  When I enter this, I don't see where these amounts are carried to the return.  Does this carry anywhere in the return?  I entered the loan forgiveness amount in Sch M-1 and it automatically shows up in Other Additions under the AAA column on Sch M-2.  Should I force it into the Other Adjustments column or just leave it in the AAA column.

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I did notice if I enter the amount for expenses, it does carry to my Ky return as an add back.  Ky agrees with the Fed regarding not counting it as income.  But they are in the process of some legislation requirement to allow the expenses.  I'm still waiting on that.  So I assume ATX is adding it back until Ky changes.

 

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12 minutes ago, Lynn EA USTCP in Louisiana said:

Randall, I think that tab at the bottom of the 1120S has more to do with the states that do not conform to the IRS PPP forgiveness / expense issue.  I'm not going to use it for my clients based in Louisiana, which conforms to IRS on this.  

 

Thanks.  I noticed for the expenses, it added it back on my Ky return.  Ky is working on this with legislation so I'll be holding it for awhile.

 

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  • 2 weeks later...
37 minutes ago, Randall said:

What about the SBA making several payments on an existing loan.  Not part of a PPP loan.  Would this too be treated as tax exempt income or just other income (taxable)?

I have client who had 6 monthly payments paid on her behalf by the SBA on her Loan due to the Cares Act.

It was later clarified that the 6 payments are not taxable and the related interest paid on the SBA Loan is deductible.

Its all good🙂

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1 hour ago, cbslee said:

I have client who had 6 monthly payments paid on her behalf by the SBA on her Loan due to the Cares Act.

It was later clarified that the 6 payments are not taxable and the related interest paid on the SBA Loan is deductible.

Its all good🙂

Thanks.  I thought I remembered reading this too.

 

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When completing Form 1120S, Schedule B has a question about any loans being forgiven.  Does this apply to the PPP loans forgiven?  If I click yes, it ask for the amount.  Do we include the PPP forgiven loan in this question?  Will it trigger an inquiry?  Is there a  place for a description or explanation.  I don't see one.

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4 hours ago, cbslee said:

I have client who had 6 monthly payments paid on her behalf by the SBA on her Loan due to the Cares Act.

It was later clarified that the 6 payments are not taxable and the related interest paid on the SBA Loan is deductible.

Its all good🙂

What kind of documentation did the client receive for this?  I have a client that received a loan of ~ $80K in early May, 2020 that was supposed to have a monthly payment of ~ $4,400 iirc, and afaik he has not received any bill or any other correspondence, and has not made any payments as yet.  In fact, he has someone looking into figuring out who the actual lender was in order to ask for the forgiveness.  When he was first approved, he thought he understood that proceeds were supposed to be deposited within 2 weeks, but he kept asking his banker about it because there was delay and no one could figure out why or who to contact. I think there was some issue where the loan processor wasn't the ultimate lender, or something like that. It was early on during the time when the small banks first came on the scene and then the next day or so many pulled their applications back temporarily until additional guidance was issued by SBA.  I'm just glad I declined to be involved in this process.

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Under this Cares Act program the SBA made 6 monthly payments directly to the loan servicing agents beginning with either April or May's payment.

Normally the loan servicing agent debited my clients bank account monthly for the loan  payment. (

Note: this was a loan my client obtained over 10 years ago!)

So during 2020 , my client made 6 payments and the SBA made 6 payments.

My client received a letter informing her of the program. last spring.

My client received another letter about a month ago informing her that she could request

3 more months of payments this year as as extended by the CAA

The tax status was clarified sometime last fall.

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I have been working on 1st and 2nd PPP Loan applications. Switching gears tomorrow to forgiveness applications;

None forgiven yet. The 10 month forgiveness application deadline is approaching for the very earliest loans.

Any loan not forgiven has the option not to start repayments  for 12 months. ( Originally was 6 months )

I don't know why anyone would be starting repayments yet unless they were doing so voluntarily.

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