I am doing a C-Corp tax return with a FY ending 6/30/2020, which includes PPP expenses. Currently, we know the regulations (including NC, the state I have to prepare/file in) indicate any expenses paid with forgiven PPP proceeds are not eligible for deduction. NC's bill, H1080, goes further to say that if any expenses are deducted at Federal level for forgiven funds, they have to be added back at state level.
Forgiveness has not occurred because the application process has not opened up with this client's bank. The client needs the tax return, though, for obtaining a loan to acquire the assets of a similar business.
I proposed two courses of action: 1) take conservative approach and assume all PPP funds spent through close of the FY will be forgiven, and add them back or 2) be aggressive based on believing Congress will pass a law that allows the expenses to follow the original "intent" of the program, which is to not be taxable income AND to be deductible. Then, depending on what ultimately becomes the law, either amend or do an adjustment on a subsequent year as allowed by the tax regs.
My client asked if I could prepare a draft copy under the conservative approach that he could then provide to his bank. IF I do this, I feel it is better to put "DRAFT - NOT FILED" as a watermark to make it very clear it is not a filed or final return. I have never released a copy to a client that would not be the final version, unless they happened to catch something I overlooked, let alone when I knew it was going to a third party for lending purposes. The return would show greater income by adding back PPP expenses, but that is what worries me--it could be artificially inflating net income vs. my favored "aggressive" approach (which falls in line with what Bradley Burnett suggests, too).
What would you do about releasing a draft copy of tax return, knowing it will go to lender? Which approach would you take concerning PPP expenses given no forgiveness has occurred? Surely I cannot be the only CPA dealing with tax returns that already have PPP related expenses...