IRS issues guidance on PPP basis adjustments - Spidell

IRS issues guidance on PPP basis adjustments


Ever since the enactment of the provisions excluding PPP loan forgiveness from taxable income, there has been debate in the tax community as to when that tax-exempt income is recognized for basis adjustment purposes. This is a big issue for taxpayers that received a PPP loan in one year but did not receive loan forgiveness until the following year.

Rev. Proc. 2021-48, released on November 18, 2021, gives taxpayers the option to treat the tax-exempt income from the forgiveness of PPP loans as received or accrued:

  • When eligible expenses are paid or incurred;
  • When an application for PPP loan forgiveness is filed; or
  • When PPP loan forgiveness is granted.

Additionally, Rev. Proc. 2021-49, released together with Rev. Proc. 2021-48, clarifies how these basis adjustments apply to owners of the following entities with forgiven debt:

  • Partnerships;
  • S corporations; and
  • Parent corporations of a consolidated group.

Rev. Proc. 2021-49 provides similar basis guidance for EIDL grants, targeted EIDL advances, Shuttered Venue Operator Grants, Restaurant Revitalization Grants, and principal and interest payments made by the SBA on a borrower’s behalf.

Rev. Proc. 2021-50, also released together with Rev. Proc. 2021-48, states that this relief is available retroactively to any tax year for which the taxpayer paid eligible expenses with the PPP loans. Taxpayers may file amended returns, and partnerships may make these adjustments on an amended return rather than an Administrative Adjustment Request as long as the amended partnership return and K-1s are filed on or before December 31, 2021.

Attend Spidell’s 2021/2022 Federal and California Tax Update webinar and get more information on this new guidance. Click here and register today.