October 5, 2022
C-Suite Wednesday – IRS Will Tax Improperly Forgiven PPP Loans
“This action underscores the Internal Revenue Service’s commitment to ensuring that all taxpayers are paying their fair share of taxes,” says IRS Commissioner Chuck Rettig. “We want to make sure that those who are abusing such programs are held accountable, and we will be considering all available treatment and penalty streams to address the abuses.”
At the end of September, the IRS issued guidance declaring that any person with a PPP loan that was forgiven based on misrepresentations or omissions must include the PPP amount in their income when filing taxes. These borrowers will pay an additional income tax.
The IRS encourages taxpayers who wrongly received PPP forgiveness to comply with this guidance and file amended returns including the forgiven loan proceeds in their income.
If borrowers met three conditions, they could receive legitimate forgiveness.
• A small business open before February 15, 2020, either with employees/independent contractors or were self-employed/a sole proprietor/an independent contractor
• Used the proceeds on eligible expenses
• Paid employees for their services or was self-employed/a sole proprietor/an independent contractor
They provided a form to report any illegal tax-related activities in relation to PPP loans: Form 3949-A, Information Referral.