After months of anticipation, on December 21, 2020, Congress finally addressed several long awaited unresolved issues surrounding much needed economic relief to workers and businesses.
Tucked within the 5,593 page ‘‘Consolidated Appropriations Act, 2021'' Bill, you will find
SEC. 276. CLARIFICATION OF TAX TREATMENT OF FOR GIVENESS OF COVERED LOANS.
(a) ORIGINAL PAYCHECK PROTECTION PROGRAM LOANS.—
(1) IN GENERAL.—Subsection (i) of section 7A of the Small Business Act, as redesignated, transferred, and amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, is amended to read as follows:
‘‘(i) TAX TREATMENT.—For purposes of the Internal Revenue Code of 1986—
‘‘(1) no amount shall be included in the gross income of the eligible recipient by reason of forgive
ness of indebtedness described in subsection (b),
‘‘(2) no deduction shall be denied, no tax at tribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross in come provided by paragraph (1), and
‘‘(3) in the case of an eligible recipient that is a partnership or S corporation—
‘‘(A) any amount excluded from income by reason of paragraph (1) shall be treated as tax exempt income for purposes of sections 705 and 1366 of the Internal Revenue Code of 1986,and
‘‘(B) except as provided by the Secretary of the Treasury (or the Secretary's delegate), any increase in the adjusted basis of a partner's interest in a partnership under section 705 of the Internal Revenue Code of 1986 with respect to any amount described in subparagraph (A) shall equal the partner's distributive share of
deductions resulting from costs giving rise to forgiveness described in subsection (b).''.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of the CARES Act.
Other highlights of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,
- An additional round of PPP loans available.
- A simplified loan forgiveness for loans of less than $150,000.00. The SBA has 24 days from enactment to publish a 1 page loan forgiveness application that can only request (1) the number of retained employees because of the loan, and (2) the estimated amount of the covered loan spent on payroll costs; and (3) the total value of the loan. The app will require an attestation of accuracy and compliance with the Section 7(a)(36) requirements, and requires retention of records for 4 years. No documentation is required with the application.
We suggest out clients schedule time with us and the company's CPA to address best practices to ensure full forgiveness of the PPP loan.