Any updates on PPP loan forgiveness recognition?

Have there been any updates on when to recognize the income from PPP loan forgiveness?

Earlier this year there were lots of discussions as to whether it should be 2020 or 2021 for loans that were forgiven in 2021 but requirements were met in 2020 and there was a reasonable expectation the loan would be forgiven. I haven't seen any but was there any additional guidance on this issue?

Nope...there is substantial authority for both approaches, but I lean toward forgiveness impact when forgiven by SBA.

Nope...there is substantial authority for both approaches, but I lean toward forgiveness impact when forgiven by SBA.

Thanks, I agree with you. However, it is really screwing up multiple clients with basis issues that could owe quite a bit of tax in 2020 if forgiveness is recognized in 2021. I was holding out to see if any guidance came out on this... I guess it's not coming.

There are a number of large firms that steadfastly held to the position that the forgiveness was 2020 income regardless of forgiveness date, assuming forgiveness was more or less assured. It certainly does ease a number of basis issues, but that's not the approach I feel is most correct.
There is also the ERC/PPP reconciliation, which must be considered. PPP loan proceeds are gross receipts for ERC gross receipts tests in the same manner it is accounted for on the tax return.

There are a number of large firms that steadfastly held to the position that the forgiveness was 2020 income regardless of forgiveness date, assuming forgiveness was more or less assured. It certainly does ease a number of basis issues, but that's not the approach I feel is most correct.
There is also the ERC/PPP reconciliation, which must be considered. PPP loan proceeds are gross receipts for ERC gross receipts tests in the same manner it is accounted for on the tax return.

Are PPP loan proceeds included for ERC gross receipts in the quarter when the proceeds are received or in the quarter when the SBA approves the forgiving of the loan? Has it been determined, for sure, that PPP proceeds are included in ERC gross receipts as I have not read anything of authority that mentions this.

There are a number of large firms that steadfastly held to the position that the forgiveness was 2020 income regardless of forgiveness date, assuming forgiveness was more or less assured. It certainly does ease a number of basis issues, but that's not the approach I feel is most correct.
There is also the ERC/PPP reconciliation, which must be considered. PPP loan proceeds are gross receipts for ERC gross receipts tests in the same manner it is accounted for on the tax return.

Are PPP loan proceeds included for ERC gross receipts in the quarter when the proceeds are received or in the quarter when the SBA approves the forgiving of the loan? Has it been determined, for sure, that PPP proceeds are included in ERC gross receipts as I have not read anything of authority that mentions this.

Was getting ready to post something on this as a client and I were discussing

Are PPP loan proceeds included for ERC gross receipts in the quarter when the proceeds are received or in the quarter when the SBA approves the forgiving of the loan? Has it been determined, for sure, that PPP proceeds are included in ERC gross receipts as I have not read anything of authority that mentions this.

This is a great point. So, if client is taking ERTC in 2020 and PPP loan forgiveness is recognized in 2020, that could kick gross receipts up past the percentage needed to take the ERTC. I didn't see anything in ERTC that mentions this. I only have a couple of clients that took both but both were substantial.

Listed below is a link to a white paper on the ERC that indicates gross receipts do not include Care Act Payments. See page 31 and 32 of the pdf. I have also seen a couple of other blog Q & A's which indicate that it is included in gross receipts. I haven't tracked down anything authoritative yet.

https://gassmanlaw.com/wp-content/uploa ... PAPERS.pdf

https://www.irs.gov/newsroom/covid-19-r ... -retention

Q43 explicitly states the employers in the example didn't receive PPP so they don't have to answer the dynamic related to whether PPP forgiveness is gross receipts. Q40 defines gross receipts and includes the statement: "In addition, gross receipts include any income from investments, and from incidental or outside sources." Gross receipts for ERC is the same as under §448(c).
I interpret this to mean that loan forgiveness proceeds are gross receipts. This may be a conservative position, but I think it's the right one. I'm open to hearing other interpretations.

Listed below is a link to a white paper on the ERC that indicates gross receipts do not include Care Act Payments. See page 31 and 32 of the pdf. I have also seen a couple of other blog Q & A's which indicate that it is included in gross receipts. I haven't tracked down anything authoritative yet.

https://gassmanlaw.com/wp-content/uploa ... PAPERS.pdf

For SBA loan purposes/qualification, the statute explicitly excluded CARES act payments from that test. I don't believe they did the same for anything else. The law certainly didn't change §448(c) in that respect. I think these attorneys are taking too broad an interpretation. I don't think IRS will investigate this issue and so they are probably fine, but that's not a dynamic that we, as tax preparers, are supposed to use in determining whether a position is appropriate or not.

PPP #1 loans/forgiveness is not included in gross receipts for the calculation of the 25% decline in receipts for PPP #2 determination. Why would there be an inconsistency in the treatment between ERC and PPP #2 gross receipt requirements?

Because no one thought about it when the ERC rules changed, and because it's the IRS.

PPP #1 loans/forgiveness is not included in gross receipts for the calculation of the 25% decline in receipts for PPP #2 determination. Why would there be an inconsistency in the treatment between ERC and PPP #2 gross receipt requirements?

For tax purposes, everything is income unless the law says it's not. If they wanted it excluded from ERC gross receipts, the framework of the code suggests they should have said that. PPP and ERC are two completely separate programs from an application standpoint. Why should we expect there to be consistency in this respect?
The provision you quote is specifically "for PPP #2 determination". Because of this qualifier, it's inappropriate to use this exclusion beyond the area to which the law states it applies.

PPP #1 loans/forgiveness is not included in gross receipts for the calculation of the 25% decline in receipts for PPP #2 determination. Why would there be an inconsistency in the treatment between ERC and PPP #2 gross receipt requirements?

For tax purposes, everything is income unless the law says it's not. If they wanted it excluded from ERC gross receipts, the framework of the code suggests they should have said that. PPP and ERC are two completely separate programs from an application standpoint. Why should we expect there to be consistency in this respect?
The provision you quote is specifically "for PPP #2 determination". Because of this qualifier, it's inappropriate to use this exclusion beyond the area to which the law states it applies.

This is my thoughts on this as well - two separate programs, each with their own rules. As I understand it, the expenses associated with PPP forgiveness are allowed, while wages used for ERTC are not. So, there would be inconsistency. So PPP loans are tax free income, expenses allowed and then you don't have to include them for ERTC gross receipts?

For tax purposes, everything is income unless the law says it's not. If they wanted it excluded from ERC gross receipts, the framework of the code suggests they should have said that. PPP and ERC are two completely separate programs from an application standpoint. Why should we expect there to be consistency in this respect?
The provision you quote is specifically "for PPP #2 determination". Because of this qualifier, it's inappropriate to use this exclusion beyond the area to which the law states it applies.

The PPP and the ERC were established under the same legislation the Cares Act.

The 2021 Consolidated Appropriations Act does state that loan forgiveness under programs established under the Cares Act are not part of gross income. I am not seeing where Congress created separate definitions of gross income for each program enacted under the Cares Act.

Section 276 of the Covid-Related Tax Relief Act provides that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision also (1) overrides current law (and IRS guidance)preventing the deduction of expenses paid with tax-exempt income by allowing businesses to deduct business expenses paid with the proceeds of a PPP loan that is forgiven, and (2) provides that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act (3/27/2020).


Section 278 of the Covid-Related Tax Relief Act clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance, each as provided by the CARES Act. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by this section, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after March 27, 2020.

I will admit. I didn't go back and read the explicit text of the bill until just now.
Given that reading, it's clear. I stand corrected. Forgiveness is not gross income for ERC purposes.

There has been additional commentary written relating to the coordination of PPP loan forgiveness and the gross receipts calculation for the ERC.

Commentators have blogged that there are different definitions of gross receipts under the Cares act versus IRC Section 448. The Cares Act excludes PPP loan forgiveness while the tax code includes tax exempt income.

For those who have filed for the ERC for their clients, how are you calculating the gross receipts to determine eligibility for the 50% decline in 2020? If including PPP proceeds in gross receipts, are you including the proceeds in the quarter the PPP loan was received or in the quarter the SBA approved the loan forgiveness?

The Cares Act excludes PPP loan forgiveness while the tax code includes tax exempt income.

IRC 448(c) says tax exempt interest (not income) because it is including investment income in gross receipts. I don't see how PPP forgiveness is investment income.

What I should of stated is that some are taking the position that PPP loan forgiveness is considered gross receipts under the IRC even though tax exempt income for tax reporting purposes.

Has there been any more guidance on how to report PPP loans and forgiveness since the last post?