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 reporting of income and expense according to Section 1366(a)(1) and adjustments to basis of stock according to Section 1367(a)(1). It includes guidance to corporations for similar adjustments of stock basis of shareholders under Sec 1502 and Regs. Sec. 1.1502-32 and the cancellation of debt under Section 1.1502-32(b)(3)(ii)(C)(1) .
Rev. Proc. 2021-50
Rev. Proc. 2021-50 provides information relevant to partnerships.
Statement to include in the return
A corporation 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 corporation's 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.
Corporation Tax Return Entries
To enter the Rev. Proc. 2021-48 statement, from the Main Menu of the corporate tax return (Form 1120) select:
- Miscellaneous Statements
- Preparer Notes - Select New and enter the statement as explained above.
An adjustment needs to be added to Schedule M-1 line 7. To enter this adjustment on Schedule M-1 select:
- Schedule M-1 - Reconciliation
- Income Recorded on Books not Included on Return
- Other income not reported on books - Select New, enter a description, e.g., "PPP LOAN FORGIVENESS", and the amount.
If the corporation included PPP loan forgiveness as tax-exempt income before it was actually forgiven, and the amount of forgiveness actually granted was lower, the corporation needs to include the difference as a decrease in tax-exempt income on Schedule M-2 line 6 for the tax year in which the corporation received notice that the PPP loan wasn't fully forgiven. To add the adjustment to Schedule M-2 in this situation select:
- Schedule M-2 - Unappropriated R/E
- Other Decreases - Select New - Enter a description e.g., PPP LOAN FORGIVENESS ADJUST TO ACTUAL, then the amount.
Caveat
- 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 Preparer Notes to your business print options.
In the printed corporation return, the tax-exempt income is included here:
- Schedule M-1, Line 7 – Income recorded on books this year not included on this return
- Schedule M-2, Line 6 Other decreases (if required)
Additional Information: