There are issues that have not been dealt with, perhaps the most important of which is the tax effect of loan forgiveness. 

The IRS has taken the position, and rightfully so, that if a PPP loan is forgiven, it is considered to be cancellation of debt, which is taxable. 

At issue is whether or not Congress passes legislation that will exempt the PPP loan from IRS Code Section 108, Income from Discharge of Indebtedness, (aka Cancellation of Debt.) It was congressional intent that the PPP loans would be exempted from Sec 108. But, they didn’t include that provision in the PPP loan legislation. Big oops! 

As a result, the IRS took the position that; PPP loan forgiveness is subject to Sec 108 and is therefore subject to income tax. That means if you get your loan forgiven now, it’s taxable. If you wait, maybe not. 

There were a few half-hearted attempts to exempt PPP loan forgiveness from Sec 108, but the political divide was and still is, at a standstill. So what to do? Ignore the hype.  Be patient and wait until we get additional guidance or legislation. Also, we are advising clients to get financial statements ready so that we are positioned to file tax returns at a moment’s notice.   

Two big issues are pending; another round of stimulus funding and PPP loan forgiveness. The talk is that something is going to happen, but it’s going to take a while longer.

If the loan is forgiven, it will be reported in the year of forgiveness. Under normal circumstances, you would receive a Form 1099-C to be included on your tax return. I say under normal circumstances because it is uncertain if the 1099-C will be issued at all. (New legislation could state; no need to file Form 1099-C on PPP loans that are forgiven.) Who knows?     

There are current advertisements that make it sound like you should act immediately. Our advice is to wait. If you apply and get PPP loan forgiveness now you’re likely to lock-in forgiveness of debt tax liability. But if you wait, there is a chance all the tax issues go away, including not having to file the loan forgiveness application.