INSIGHTS AND RESOURCES
Forgiven PPP loans are not reportable on Form 1099C
TAX ALERT |
Authored by RSM US LLP
The U.S. Internal Revenue Service (IRS) recently published IRS Announcement 2020-12 notifying lenders that they are not required to file IRS Form 1099-C, Cancellation of Indebtedness, reporting the amount of qualifying forgiveness for covered loans made under the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). Section 6050P of the Internal Revenue Code and governing regulations require certain entities, including financial institutions, government agencies and organizations in the trade or business of lending, that discharge $600 or more of a borrower’s indebtedness, to file an IRS Form 1099-C and to furnish a copy of the form to the borrower/recipient. However, Announcement 2020-12 clarifies that if all or a portion of the stated principal amount of a loan is forgiven because the recipient satisfies certain conditions for forgiveness under the CARES Act, then the lender is not required to file a Form 1099-C with the IRS or to issue a Form 1099-C to the borrower/recipient. As year-end approaches, the announcement is welcomed relief for lenders struggling to understand their tax reporting obligations and to gather reportable data associated with the potentially high volume of PPP loans that may be forgiven amidst the ongoing economic crisis resulting from the COVID-19 pandemic.
The PPP was created under section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (P.L. 116-136) and generally allows businesses with fewer than 500 employees to borrow up to $10 million. Under the program, if the loan is used for payroll costs and certain conditions are satisfied, a borrower may be eligible for forgiveness of all or a portion of the stated principal amount of the loan. Borrowers applying for PPP loans of $2 million or more may also be required to provide additional information. On Oct. 26, 2020, the SBA published a notice in the Federal Register announcing that it is seeking comments on new draft Loan Necessity Questionnaires (Form 3509 (For Profit Businesses) and Form 3510 (Not for Profit Businesses)) for PPP borrowers receiving loans of $2 million or more. Refer to our prior alert on the SBA Loan Necessity Questionnaire.
While the SBA has not finalized the questionnaires, it is currently soliciting comments on them as it is likely that certain responses or explanations provided by borrowers may be taken into account when evaluating loan eligibility for forgiveness under the CARES Act which will, in turn, drive Form 1099-C reporting requirements for lenders. Therefore, it is important that lenders implement internal controls and procedures now for collection and review of documentation evidencing the borrowers’ eligibility for forgiveness and the loan’s exclusion from 1099-C reporting. Lenders may also need to modify their systems to timely flag loans and borrowers eligible for forgiveness. To the extent that Forms 1099-C are required, the forms will be due on or before January 31 of the year following the calendar year in which an identifiable event (e.g., loan forgiveness) occurs.
For more information on RSM’s tax information reporting please see PPP and CARES Act planning services.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Ramon Camacho, Aureon Herron-Hinds, Lesley-Ann Hosein and originally appeared on 2020-11-12.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.