Improperly Forgiven PPP Loans Are Now Taxable
In a memorandum released in September 2022, the IRS has confirmed that if a PPP loan was forgiven based on misrepresentations or omissions by the taxpayer, the taxpayer is not eligible to exclude the forgiven amount from income. Any portion of the loan proceeds that were forgiven in error must be included in their gross income. The IRS is encouraging taxpayers who improperly received forgiveness of their PPP loans to come into compliance, by filing amended tax returns for example.
While most PPP loan recipients used their proceeds properly and subsequently qualified for forgiveness, some recipients have been found to not meet one or more of the conditions for loan forgiveness eligibility. They either did not qualify to receive a PPP loan in the first place or misused the proceeds, later using misrepresentation or omission to claim forgiveness. PPP loan recipients can receive forgiveness of the full amount of their loans if they meet the following three conditions:
- The recipient was eligible to receive the loan.
- The proceeds were used to pay for eligible expenses, such as payroll costs (at least 60% of the loan amount), rent, mortgage interest, and utilities.
- The recipient applied for loan forgiveness via an application that required them to attest to eligibility, verify financial information about how the loan proceeds were used, and meet other legal qualifications.
If all three conditions are met, the forgiven portion of the loan is excluded from income. If not, the loan proceeds amount that was forgiven but didn’t meet the conditions must be included in the income and the taxpayer must pay any additional income tax.
Contact Us
If you have questions about the information outlined above or need assistance with an estate planning issue, Klatzkin can help. For additional information call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.
©2022 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.