IR-2022-162, September 21, 2022
WASHINGTON — The Inner Income Service just lately issued guidance addressing improper forgiveness of a Paycheck Protection Program loan (PPP loan)PDF.
The steerage confirms that, when a taxpayer’s mortgage is forgiven primarily based upon misrepresentations or omissions, the taxpayer will not be eligible to exclude the forgiveness from earnings and should embody in earnings the portion of the mortgage proceeds that had been forgiven primarily based upon misrepresentations or omissions. Taxpayers who inappropriately obtained forgiveness of their PPP loans are inspired to take steps to come back into compliance by, for instance, submitting amended returns that embody forgiven mortgage proceed quantities in earnings.
“This motion underscores the Inner Income Service’s dedication to making sure that each one taxpayers are paying their justifiable share of taxes,” mentioned IRS Commissioner Chuck Rettig. “We wish to be sure that those that are abusing such applications are held accountable, and we might be contemplating all out there therapy and penalty streams to handle the abuses.”
Many PPP mortgage recipients who obtained mortgage forgiveness had been certified and used the mortgage proceeds correctly to pay eligible bills. Nevertheless, the IRS has found that some recipients who obtained mortgage forgiveness didn’t meet a number of eligibility situations. These recipients obtained forgiveness of their PPP mortgage by means of misrepresentation or omission and both didn’t qualify to obtain a PPP mortgage or misused the mortgage proceeds.
The PPP mortgage program was established by the Coronavirus Help, Aid and Financial Safety Act (CARES Act) to help small US companies that had been adversely affected by the COVID-19 pandemic in paying sure bills. The PPP mortgage program was additional prolonged by the Financial Help to Arduous-Hit Small Companies, Nonprofits and Venues Act.
Underneath the phrases of the PPP mortgage program, lenders can forgive the total quantity of the mortgage if the mortgage recipient meets three situations.
- The mortgage recipient was eligible to obtain the PPP mortgage. An eligible mortgage recipient:
- is a small enterprise concern, unbiased contractor, eligible self-employed particular person, sole proprietor, enterprise concern, or a sure sort of tax-exempt entity;
- was in enterprise on or earlier than February 15, 2020; and
- had staff or unbiased contractors who had been paid for his or her providers, or was a self-employed particular person, sole proprietor or unbiased contractor.
- The mortgage proceeds had for use to pay eligible bills, resembling payroll prices, hire, curiosity on the enterprise’ mortgage, and utilities.
- The mortgage recipient needed to apply for mortgage forgiveness. The mortgage forgiveness utility required a mortgage recipient to attest to eligibility, confirm sure monetary info, and meet different authorized {qualifications}.
If the three situations above are met, then underneath the PPP mortgage program the forgiven portion is excluded from earnings. If the situations will not be met, then the quantity of the mortgage proceeds that had been forgiven however don’t meet the situations should be included in earnings and any further earnings tax should be paid.
To report tax-related unlawful actions regarding PPP loans, submit Form 3949-A, Information ReferralPDF. Taxpayers must also report situations of IRS-related phishing makes an attempt and fraud to the Treasury Inspector General for Tax Administration at 800-366-4484
