PPP and Other Financial Assistance: Tax Treatment Clarification
The Coronavirus Response and Relief Supplemental Appropriations Act, 2021 was signed into law by President Trump on December 27. Section 276 of the Act clarifies the tax treatment of Paycheck Protection Program (PPP) loans, which is a welcomed clarification by many. The clarification is effective as of March 27, 2020, the enactment of the CARES Act. The Act also provides for similar treatment of PPP loans and other financial assistance provided for in both the CARES Act and the new Act.
PAYCHECK PROTECTION LOANS NOT TAXABLE INCOME
The Act expressly adds provisions to Section 7(a) of the Small Business Act stating
- PPP loan proceeds shall not be included in gross income of a borrower/entity
- Deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven
- Tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness
EIDL GRANTS, GRANTS FOR SHUTTERED VENUE AND OTHER FINANCIAL ASSISTANCE NOT TAXABLE INCOME
In addition to clarification with respect to PPP loans, the Act states that certain loans, emergency EIDL grants, Targeted EIDL advances and Grants for Shuttered Venue Operators shall not be included in gross income of an entity that received such financial assistance. Again, the Act further provides that deductions are allowed for otherwise deductible expenses paid with amounts/grants/financial assistance received and not to be included as income under the Act.
Borrowers and recipients of PPP loans and/or grants should consult with their tax advisors and potentially with legal counsel to ensure that the funds they received and used are appropriately treated on upcoming tax returns.