IRS Provides Important Guidance for Treatment of Tax Exempt Income and Timing Of Basis Adjustments Related to PPP Loan Forgiveness

The IRS released three revenue procedures on November 18 (Rev. Procs. 2021-48, 2021-49, and 2021-50) providing important guidance on the treatment of amounts excluded from a taxpayer’s gross income related to the forgiveness of PPP loans and the timing basis adjustments. As a whole, the guidance is considered favorable to taxpayers.

Rev. Proc. 2021-48 provides guidance with respect to the timing of receipt of PPP forgiveness tax-exempt income. Such income is treated as received or accrued when either (1) expenses eligible for forgiveness are paid or incurred; (2) an application for PPP loan forgiveness is filed; or (3) PPP loan forgiveness is granted.

https://www.irs.gov/pub/irs-drop/rp-21-48.pdf

Rev. Proc. 2021-49 describes how partners and partnerships may allocate among partners their share of PPP loan forgiveness tax-exempt income and deductions resulting from expenditures attributable to the use of forgiven PPP loans. It also describes how to make corresponding adjustments to the partners' bases in their partnership interests under IRC Sec. 705.

Guidance is also provided for corporations for similar adjustments of stock basis by subsidiary members of consolidated groups under Sec. 1502 and Regs. Sec. 1.1502-32.

https://www.irs.gov/pub/irs-drop/rp-21-49.pdf

Rev. Proc. 2021-50 allows certain partnerships (eligible partnerships subject to audit procedures under the Bipartisan Budget Act of 2015, P.L. 114-74) to file amended Forms 1065 and issue amended Schedules K-1 for tax years ending after March 27, 2020. These amended returns and Schedules K-1 must be filed or furnished by Dec. 31, 2021.

https://www.irs.gov/pub/irs-drop/rp-21-50.pdf

IRS just released Rev Proc's 2021-48 & 2021-49 regarding the treatment of PPP loans as T/E income & timing of adjustments. Looking through 2021-48 I believe we have our answer from the IRS about recording basis adjustments prior to get the SBA blessing on forgiveness.