TaxProTalk.com

I see the many topics re: getting funds out to S Corp shareholders (draw, dividends, wages), and problems with fiscal years.

For your typical small S corp with a calendar year, are most of you just reporting the PPP funds as additional income rather than trying to back out payroll and other allowed expenses?

and

We are recognizing the funds in 2020, assuming forgiveness, so we don't have to amend corp returns as well as the shareholders returns too?

Thanks

I think most CPA's planning on delaying the forgiveness until 2021. And I plan on filing all fiscal year returns with the PPP loan still on the book as a loan and deducting 100% of wages, rent and utilities on the fiscal year returns filed.

Berkshire, what happens in 2021 when the PPP loan is forgiven? How will you treat the 2020 expenses if they continue to be non deductible?

I plan on getting forgiveness for as many clients as possible in 2020. That way, at least we know what the tax rates are. And it also follows the matching principle.

You think it will happen in 2020?
My first client to apply for forgiveness got notice today from the lender that his application was approved. He will receive electronic documents to sign "within a few weeks". The lender then helpfully pointed out that SBA has 90 days from the date the lender submits the executed paperwork to make their decision and provide their paperwork.

My thinking is if the loan is not forgiven when they file the tax return, you would show the PPP as a loan and deduct all expenses. If the loan is forgiven after the tax return has been filed, hopefully you would just bring it into income the following year.

I have one that received PPP loan in April, and has a 5-31 year-end. I extended tax return, but trying to decide exactly what to do. I'm thinking if loan is forgiven, then only the applicable expenses paid from April to end of May (about 1/2 of loan) are non deductible, and the other half would be non-deductible in the next fiscal year. That way the taxes would essentially be spread over two years.

I am 99.9% certain that the expenses are going to be deductible. If somehow congress does not allow the deductions then I will either have to amend the fiscal year returns or adjust the FY 2021 expenses. The Chairmen of the Ways and Means is our congressman (Richard Neal) and he has said repeatedly that congress will correct this. It will be addressed but like anything congress does it will probably be last second, like the tax extenders always are.

I can not see filing a fiscal year return with the expenses non deductible when everyone seems to agree that congress will address this issue.

I am leaning toward 2020 recognition for a number of clients. Most folks also had lower income. So, recognizing the tax effect in 2020 keeps a certain level of consistency instead of ending up with a spike in 2021.
That said, this is very much a facts and circumstances determination working closely with the client to make a call...absent clear guidance.

I, too, believe a legislative fix will happen, but if it doesn't I'm hopeful IRS will provide clear guidance.

I think I'd rather recognize it in 2020 and amend only3 of 100 returns, rather than have to amend 97 returns (and 700 individual returns) after the PPP's are forgiven. Also "if" congress allows the deduction I can't see it happening before lots of returns are already filed.

I also agree with Noobie on "Matching"

Seaside CPA wrote:If the loan is forgiven after the tax return has been filed, hopefully you would just bring it into income the following year.

How do you justify reporting the forgiveness as income when section 1106(i) of the CARES Act says that it’s not taxable:

(i) TAXABILITY.---For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.

Taxable or non taxable, it still is brought into income instead of being shown as a loan.

dave829 wrote:

Seaside CPA wrote:If the loan is forgiven after the tax return has been filed, hopefully you would just bring it into income the following year.

How do you justify reporting the forgiveness as income when section 1106(i) of the CARES Act says that it’s not taxable:

(i) TAXABILITY.---For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.

It is not taxable, but the expenses used to forgive it are expenses allocated to non-taxable income, therefore, non-deductible.... As the IRS has repeatedly said.

dave829 wrote:

Seaside CPA wrote:If the loan is forgiven after the tax return has been filed, hopefully you would just bring it into income the following year.

How do you justify reporting the forgiveness as income when section 1106(i) of the CARES Act says that it’s not taxable:

(i) TAXABILITY.---For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.

I am trying to look at this from a logical standpoint. If you have up to 5 years (maturity date of the loan) to ask for forgiveness and do it a few years from now, you certainly wouldn't try to amend a closed year to reduce expenses. It doesn't make sense. I've been sitting on several May & June (and soon to be Sept) corporate returns not knowing which way to go. I need my fees and don't want to be preparing FYE returns during the filing time crunch. Also, you may not get the forgiveness you think, may not get any at all or you may decide not to ask for forgiveness. Well known tax speaker David Mellum says "if you have a June year end and at the end of the FYE you owe the PPP loan, it's just a loan on the books and should be handled that way because at that point in time there was no forgiveness issues". Dave829 do you agree with his thinking?

Really - I do not think anyone(very few) is going to get formal response on the forgiveness in 2020.

I think I agree that very few people are going to see forgiveness in 2020. My bank keeps telling me I have to wait to submit my request for forgiveness until they open their portal at which time I will receive an e-mail directing me to apply. It's really frustrating because I would actually like to start the process. Once filed, from what I've read, the full process, start to finish, takes a couple of months. So not likely to be completed by year end.

If you have an expectation for the loan to be forgiven, and loan is forgiven before you file the tax return, then I believe you should include it on the 2019 return.

I liken this in some ways to insurance proceeds. You can't take a loss when that loss is insured and you expect reimbursement. I understand the premise is different, but the economics are largely the same.

gusser wrote:Well known tax speaker David Mellum says "if you have a June year end and at the end of the FYE you owe the PPP loan, it's just a loan on the books and should be handled that way because at that point in time there was no forgiveness issues". Dave829 do you agree with his thinking?

I agree that if there is no forgiveness at year-end, then the loan is reflected as a loan on the books. But that wasn't my point. My point was that you cannot just choose to report the forgiveness of the loan as income when a federal statute specifically excludes it from income.

My point was that you cannot just choose to report the forgiveness of the loan as income when a federal statute specifically excludes it from income.. Also, when there has not been a forgiveness, what allows reporting forgiveness income?

Whether we each individually report it as negative expenses, or as income, the net result on the P&L is going to be the same, and I can't see IRS arguing about that as long as it's reported (I haven't looked at 199A wage ramifications).

With the large number of these loans issued I'd expect guidance sooner than filing season. I have clients with upwards of 1/2 million of these loans and the shareholders are trying to get personal estimated payment numbers. Some have lots of cash in checking accounts they want out in bonuses, for deductions to reduce K-1 income, but they need to run payroll before year end.

At this point I think I'm reporting all wage costs, for 199A, and recognizing in 2020 for everyone who received and spent the funds in 2020, and hoping that this way causes me to "amend the fewest number of returns".

And hope for guidance !