Welcome back to Ned’s blog spot, where you can find all the answers to your tax questions. The IRS has advised that improperly forgiven Paycheck Protection Program (PPP) loans, are taxable. If you received PPP for your small business during the pandemic, please continue reading. The following information WILL affect your tax return for this upcoming tax year.
The Paycheck Protection Program (PPP) was established by the CARES Act to assist small businesses negatively affected by COVID-19. Many loan recipients who received forgiveness were qualified and used the loan to pay expenses. Since then, the IRS has discovered some recipients did not meet one or more of the eligible requirements. These specific recipients received forgiveness of their PPP loan via misrepresentation or exclusion and didn’t qualify for or misused the loan funds.
On September 21, 2022, the IRS issued an article of guidance confirming that, “when a taxpayer’s loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness forgiven based upon said misrepresentation or omissions.” In layman’s terms, if you received a PPP loan and weren’t eligible, that loan will be taxable on this year’s tax return. Taxpayers who did not qualify or misused funds are being encouraged to file an amendment on returns that include forgiven loan amounts, as income. The following is a statement from IRS Commissioner, Chuck Rettig on the matter:
“This action underscores the Internal Revenue Service’s commitment to ensuring that all taxpayers are paying their fair share of taxes, we want to make sure that those who are abusing such programs are held accountable, and we will be considering all available treatment and penalty streams to address the abuses.”
HOW DO I KNOW IF THIS APPLIES TO ME?
Listed below you will find the three requirements to have complete loan forgiveness, as are stated on the IRS website. If all three requirements are met, the forgiven portion is excluded from income. If the conditions were not met, the forgiven amount must be included as income and will be taxable.
1. An eligible loan recipient:
a- Is a small business, independent contractor, eligible self-employed individual, sole proprietor, business, or a certain type of tax-exempt entity.
b- Was in business on OR before February 15, 2020
c- Had employees or independent contractors who were paid for their services, or was self-employed individual, sole proprietor, or independent contractor.
2. The loan proceeds had to be used to pay eligible expenses, such as payroll costs, rent, interest on the business’ mortgage, and utilities.
3. The loan recipient had to apply for loan forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information, and meet other legal qualifications.
For more information, please visit the IRS website directly here:
We hope you find this information helpful as you begin to prepare for the upcoming tax season. And as always, the information for our main office downtown will be listed as well. Don’t forget to check back for more!
Ned Jackson Downtown Office
255 N Liberty Street
Jacksonville, FL 32202