The IRS has announced there has been improper forgiveness of some Paycheck Protection Program (PPP) loans. The Paycheck Protection Program is a business loan program established in 2020 to help businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers during the COVID-19 pandemic. Optima Tax Relief notifies taxpayers of the guidance the IRS has issued.
The guidance was issued to address the taxpayers that had their PPP loans forgiven even though they did not factually satisfy the qualifying conditions. To qualify for PPP loan forgiveness, the recipient needed to meet all of the following requirements:
- Be considered a small business, independent contractor, eligible self-employed individual, sole proprietor, business, or a certain type of tax-exempt entity
- Be in business on or before February 15, 2020
- Have employees or independent contractors who were paid for their services
The loan needed to be used to pay eligible expenses including payroll, rent, interest on the business mortgage, and utilities. Finally, the recipient needed to apply for loan forgiveness according to these qualifications.
If the forgiveness was not appropriate according to the above guidelines, the taxpayer may not exclude loan forgiveness from their income during tax time. Instead, the IRS is advising these taxpayers to file amended returns that include the forgiven loan amount in their income.
The IRS is considering all available treatment and penalty options to punish any taxpayer who abuses this program. They are also advising taxpayers to report illegal tax-related activities, including those related to PPP loans, using Form 3949-A, Information Referral.