Three is the magic number of new Paycheck Protection Program guidance from the IRS

Eversheds Sutherland (US) LLP

The IRS recently released a trio of Revenue Procedures—2021-48, 2021-49, and 2021-50—related to the Paycheck Protection Program (PPP), which has been the subject of a number of our previous legal alerts. Some alerts can be viewed here, here, and here.

In the IRS’ own words, here is what these guidance documents say:

Revenue Procedure 2021-48 provides that taxpayers may treat amounts that are excluded from gross income (tax-exempt income) in connection with the forgiveness of [PPP] Loans as received or accrued: (1) [when] eligible expenses are paid or incurred, (2) when an application for PPP Loan forgiveness is filed, or (3) when PPP Loan forgiveness is granted. To the extent tax-exempt income resulting from the forgiveness of a PPP Loan is treated as gross receipts under a particular Federal tax provision, this revenue procedure applies for purposes of determining the timing and, to the extent relevant, reporting of such gross receipts.

Revenue Procedure 2021-49 provides guidance for partnerships and consolidated groups regarding amounts excluded from gross income and deductions relating to the [PPP] and certain other COVID-19 relief programs. More specifically: This revenue procedure provides guidance for partners and their partnerships regarding allocations under § 704(b) of the Internal Revenue Code and the corresponding adjustments to be made with respect to the partners’ bases in their partnership interests under § 705 of the Code. This revenue procedure also provides guidance under § 1502 of the Code and § 1.1502-32 of the Income Tax Regulations regarding the corresponding basis adjustments for stock of subsidiary members of consolidated groups as a result of tax exempt income arising from certain forgiven PPP Loans, grant proceeds, or subsidized payment of certain principal, interest and fees.

Revenue Procedure 2021-50 allows eligible BBA partnerships [i.e., those partnerships subject to the centralized partnership audit regime] to file amended Forms 1065 and furnish amended Schedules K-1 on or before December 31, 2021, to adopt the guidance set forth in Rev. Procs. 2021-48 and 2021-49 if certain requirements are met.

ES Observation: This is certainly helpful information for businesses that received PPP loans and that have, or are working through, the forgiveness process. But the form of this guidance is also telling. The Treasury and the IRS have published several forms of informal guidance related to this program since its creation by Congress in March of 2020. (A few examples include Frequently Asked QuestionsNotice 2020-32Press Release IR-2021-04Revenue Ruling 2021-02, and Revenue Procedure 2021-20.) This year, the guidance has almost exclusively come in the form of revenue procedures.

A revenue procedure is an official statement of a procedure published in the Bulletin that either affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations or, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge. Rev. Proc. 89-14.

ES Observation: The shift in format and increase in volume guidance suggests that taxpayers and the IRS are continuing to identify gaps or ambiguity in existing guidance. It also shows a broad effort to publish written guidance, with Rev. Procs. 2021-20, 2021-33, and 2021-48 coming from Income Tax & Accounting; 2020-49 coming from Passthroughs and Special Industries; and 2021-50 coming from Procedure and Administration. Given the subject matter of this tranche of guidance, it is possible that the IRS focus will shift next to enforcement.

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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