In November 2021 the IRS issued three Revenue Procedures (RP 2021-48, RP 2021-49, and RP 2021-50) providing guidance for reporting excludable income resulting from the forgiveness of Paycheck Protection Program (PPP) loans.
Rev. Proc. 2021-48
Rev. Proc. 2021-48 section 3.01 addresses the timing of reporting the income excluded from gross receipts due to the PPP Loan. Income may be either received or accrued based on:
(1) When the expenses eligible for forgiveness were paid or incurred;
(2) When an application for PPP loan forgiveness was filed; or,
(3) When PPP loan forgiveness was granted.
Rev. Proc. 2021-49
Rev. Proc. 2021-49 addresses how partnerships may allocate among partners their share of PPP loan forgiveness tax-exempt income and expenditure deductions for which the PPP Loans were used. It also describes how to make corresponding adjustments to the partners' bases in their partnership interests under IRC Sec. 705.
It also includes guidance to corporations for similar adjustments of the stock basis of shareholders under Sec. 1502 and Regs. Sec. 1.1502-32.
Rev. Proc. 2021-50
Rev. Proc. 2021-50 directs eligible partnerships to file amended 1065 returns and issue amended K-1s to its partners in lieu of filing an Administrative Adjustment Request. Refer to the revenue procedure to determine if the partnership is eligible.
Statement to include in the return
A partnership that has tax-exempt income resulting from the forgiveness of a PPP loan must attach a statement to their return titled "RP2021-48" including the following information about each loan received:
- The partnership name, address, and EIN.
- The amount of tax-exempt income from the forgiveness of the PPP loan.
- Which of the three sections is being applied, 3.01(1), (2), or (3), as explained above.
- Whether or not forgiveness of the PPP loan has been granted as of the date the return was filed.
Partnership Return Entries
To enter the Rev. Proc. 2021-48 statement, from the Main Menu of the partnership return (Form 1065) select:
- Miscellaneous Statements
- Preparer Notes (Sent to IRS) - Select New and enter the statement as explained above.
To enter the tax-exempt Income, from the Main Menu of the partnership return (Form 1065) select:
- Schedule K
- Other Tax Exempt Income
Lastly, include an adjustment on Schedule M-1. From the Main Menu of the partnership return (Form 1065) select:
- Schedule M-1 - Reconciliation
- Other Income Not on Sch K - Select New, enter a description, e.g., "PPP LOAN FORGIVENESS", and the amount.
- The above Schedule K entry assumes you are automatically distributing Schedule K information to each partner's K-1. If you aren't automatically distributing Schedule K information you will need to enter each partner's share of the tax exempt income to their K-1 manually.
- The preparer note goes to the IRS in the e-filed return and is available to be printed in the View Results menu. If it's not included in the complete printed return, you can add it in the various business print options you use in program configuration. See here for more information on adding it to your business print options.
In the printed partnership return, the tax-exempt income is included here:
- Schedule K, Line 18b – Other tax-exempt income
- Schedule K-1, Box 18, Code B – Tax-exempt income and nondeductible expenses.
- Schedule M-1, Line 6a