Congress Clarifies PPP Forgiveness Tax Treatment

On December 21, 2020, Congress passed another COVID-19 Bill, which the President is expected to sign.  The new legislation covers a variety of coronavirus-related issues.  In this Client Alert, the first in a series of Client Alerts covering various aspects of the legislation, we summarize the provisions of the Bill clarifying tax treatment of PPP Forgiveness. 

According to the new legislation:

  • Borrowers will not face forgiveness of debt income arising from a PPP loan being forgiven. 
  • Borrowers can deduct expenses paid with the proceeds of a PPP loan even if the loan is later forgiven.  This reverses the position taken by the IRS, Treasury, and SBA on the issue. 
  • Even though the forgiveness of debt is excluded from a borrower’s gross income, for an eligible recipient that is a partnership or S-Corporation, the forgiven debt can be added to the partners’ or shareholders’ adjusted basis.

Please contact a MacDonald Illig attorney if you have any questions regarding the new legislation or any other issues.