The AICPA seeks advice on S corp. and PPP partnership loan discount
Taxpayers urgently need advice on Paycheck Protection Program (PPP) loan forgiveness issues, the AICPA told the IRS, and the AICPA has made recommendations offering solutions to these problems.
The proposed solutions have arrived a letter sent March 15 from the AICPA Tax Executive Committee to two members of the IRS Senior Legal Advisor’s Office, requesting additional guidance and making recommendations on how to apply the Consolidated Appropriations Act (CAA), 2021, PL 116-260, and more specifically article 276 of the COVID-Related Tax Relief Act of 2021, promulgated under the CAA. Section 276 of the law provides that expenses paid with canceled PPP funds are deductible, PPP borrowers must not reduce any of the tax attributes, and no base increase must be denied due to the exclusion of the tax. ‘PPP cancellation of gross income. Section 276 also provides PPP borrowers of S corporations and partnerships with instructions regarding the tax treatment of the amount excluded from gross income due to the cancellation of the PPP loan. As the tax filing deadlines approach, practitioners and taxpayers alike need additional guidance on these provisions.
Under Section 276, S corporations and partnerships treat the gross income exclusion as tax-exempt income, and shareholders and partners increase their tax base in S corporation or partnership depending on their share of income exempt from tax. However, the fact that the period in which the eligible expenses were paid does not necessarily match the period of obtaining a PPP loan forgiveness adds complexity to the application of this base increase.
The AICPA recommends that the Treasury and IRS issue guidance indicating that the appropriate period for inclusion of income exempt from tax due to Section 276 is when the PPP borrower pays or incurs qualifying expenses during the discount period covered. The AICPA also requests that the guidelines state that the IRS does not intend to challenge the treatment of the loan forgiveness as a ministerial act.
The second issue on which the letter seeks guidance is the appropriate treatment of “related expenses” for S corporations. The AICPA recommends that for the purposes of S corporation, related expenses (qualifying PPP expenses) that are deducted and allocated PPP loan are not taken into account for the adjustment account accumulated in accordance with Sec. 1368 (e) (1) (A). Instead, the other adjustment account should include these related expenses as they are directly related to the tax exempt income per Section 276 transaction due to the cancellation of the PPP loan. The AICPA is asking the Treasury and the IRS to issue guidelines reflecting this appropriate treatment and disregard the regulations. Second. 1.1368-2 (a) (3) (i) for this limited purpose.
Finally, the AICPA asks how to correctly report these tax-exempt income amounts on Form 1065, US Return of Partnership Income, and form 1120-S, U.S. tax return for an S corporation. Specifically, the AICPA explained that “There is no clear or uniform method for recording canceled PPP loans in a taxpayer’s return, for example how and where they are reported (i.e. on a particular row or schedule) . In particular, the basic questions on the 1065 and 1120-S forms are a concern for many PPP borrowers as this is a new program that is always evolving rapidly. The AICPA recommended that PPP loans should not be treated as debt for the purposes of these questions.
AICPA experts discuss the latest news on PPP and other small business support programs at a virtual town hall that is held every two weeks. The webcasts, which offer CPE credits, are free for AICPA members and $ 39.99 for non-members. Go to AICPA Town Hall Series web page for more information and to register. Recordings of Town Hall events can be viewed free of charge at AICPA television.
the AICPA Paycheck Protection Program Resource Page houses resources and tools produced by the AICPA to help cope with the economic impact of the coronavirus.
Accounting firms can prepare and process PPP applications on the CPA business financing portal, created by AICPA, CPA.com and fintech partner Biz2Credit.
– Sally P. Schreiber, JD, ([email protected]) is a JofA senior editor.