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16754: Paycheck Protection Program and Economic Injury Disaster Loans


IRS Info/Alerts

Where can I find more information about the paycheck protection program (PPP), PPP Loan forgiveness, and Economic Injury Disaster Loans (EIDL)?

 

Information about the paycheck protection program (PPP) and is available from SBA.gov. There is a loan forgiveness application and calculation form available as well. 

General information about the Economic Injury Disaster Loans (EIDL) is available from SBA.gov. While the IRS does not address EIDL Grants and Targeted EIDL Advances in the instructions, REV PROC 2021-49 gives clarification on how these items should be treated for tax purposes.

Entering PPP Loan Amounts

1040:

  • The PPP Loan forgiveness creates tax exempt income. While tax exempt income is not generally reported on an individual tax return, there are some reporting requirements and elections that can be made related to the PPP loans in Drake21 on the Miscellaneous tab. Use the PPP screen for Rev. Proc. 2021-20. Use the PP2 screen for Rev. Proc. 2021-48. Be sure to choose the Applicable tax year (2020 or 2021) in the drop down on the PP2 screen. See the 1040 Instructions for details on what information is required to be reported with Form 1040.

990:

  • If the loan is forgiven, enter the amount as contributions from a governmental unit on Part VIII, line 1e. Make entries on the PPP and PPP2 screens as applicable (see below for details).
  • If loan is NOT forgiven you enter it as you would any other loan.

1120:

  • If loan is forgiven you do an M-1 adjustment (line 7). Make entries on the PPP and PPP2 screens as applicable (see below for details). 
  • If loan is NOT forgiven you enter it as you would any other loan.

1065/1120-S:

Loan Forgiven

  • You treat the amount as tax-exempt income and enter it accordingly on the Schedule K screen: 
    • 1120S– screen K > AMT and Basis tab line 16b
    • 1065 – screen K > AMT and Other tab line 18b
  • This creates an automatic M-1 adjustment: 
    • Per the 1120-S Instructions, "An S corporation should include tax-exempt income from the forgiveness of PPP loans on line 5 of the Schedule M-1 (if it was included on line 1 of the Schedule M-1), or on Part II, line 22 of the Schedule M-3, column (c), as a negative number (if it was included on line 22 in column (a) as income per income statement)."
    • Per the 1065 Instructions: "Include tax-exempt income from forgiven PPP loans on line 6 if it was included on line 1 of Schedule M-1."
  • Adjustments to Schedule M-2:
    • The 1120-S, Schedule M-2, column (d) line 3 is automatically adjusted by the entry on the K screen: "An S corporation should include tax-exempt income from the forgiveness of PPP loans in column (d) on line 3 of the Schedule M-2." 
      • Note: If the funds were received and forgiven in the current year, the preparer should offset the expenses paid with these expenses by making a manual adjustment on the M-2 screen, line 5.  
    • No adjustment is required or made for a  Form1065, Schedule M-2. 
  • Make entries on the PPP and PPP2 screens as applicable (see below for details).

Loan Not Forgiven 

  • If loan is NOT forgiven you enter it as you would any other loan.

State Returns 

State reporting and taxability may vary; consult state instructions for details, where available. Also see Section 276 of the Consolidated Appropriations Act, 2021 and the CARES Act

PPP Election

The PPP screen can be used to complete the safe harbor election in accordance with Rev. Proc. 2021-20. This is used to elect to deduct on the 2021 tax return expenses that were paid in tax year 2020 with forgiven PPP loan monies. This can only be used if the expenses were not already deducted in the prior year (2020) return. This election creates the required statements for the election. Any other data entry related to these expense will need to be done where appropriate in the relevant return.

Alternatively, the taxpayer can choose to amend the prior year return to claim the expenses instead of doing the election in the 2021 return. If the taxpayer already deducted the expenses last year, no entry or election is necessary in 2021.

PPP Statement 

The PPP2 screen is used to enter the information needed to create the required statement reporting PPP loan forgiveness under Rev. Proc. 2021-48. This tells the IRS when a PPP loan was effectively forgiven.

From the 1120S instructions, line 16b:

"Attach a statement to the S corporation return for each tax year in which the S corporation is applying Rev. Proc. 2021-48, sections 3.01(1), (2), or (3)."

From the 1065 instructions, line 18b:

"Attach a statement to Form 1065 for each tax year in which the partnership is applying the provisions of Rev. Proc. 2021-48, section 3.01(1), (2), or (3)."

Form 990

Statements only generate for Form 990-T return. The statements will not generate for Forms 990, 990-EZ or 990-PF.


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