IRS Issues New Guidance on Reporting PPP Loan Forgiveness

September 30, 2020

As more recipients of the PPP loan take steps towards receiving the loan forgiveness provided through the CARES Act, the IRS is releasing more information and guidance for both lenders and borrowers. Most recently, the IRS announced a change in how lenders should handle forgiveness from a filing perspective, deviating from the typical processes when a lender agrees to cancel debt. Specifically, lenders should not file any tax information returns to report PPP loan forgiveness.

While this announcement should not require borrowers to take any actions, it’s important to be informed so you know what to expect of your lender during the forgiveness process.

What to expect from your lender

In their latest announcement, the IRS clarified that lenders should not file a Form 1099-C to report full or partial forgiveness of a PPP loan for federal income tax purposes, nor should they send a payee statement to the borrower.

This departs from the standard practice for reporting reductions in debt. Typically, lenders must file a Form 1099-C to report any cancellation of debt for an amount of $600 or more, which also requires providing the borrower with a copy of the form, or a payee statement.

The IRS warned lenders that filing this form for any PPP loan forgiveness could result in erroneously issued under-reporter notices to borrowers, which could cause confusion and create more hassle for borrowers.

How to avoid further confusion

While the IRS made this announcement to prevent confusion, it is likely to create even more as lenders scramble to adjust their processes. The process of filing Form 1099-C for cancellation of debt is so standard that many lenders have automated the filing as part of their typical tax information reporting obligations.

While you should be able to trust that your lender will take the appropriate actions to modify their systems, you should keep an eye out for any mistakenly issued payee statements from your lender or under-reporter notices from the IRS.

The bottom line

The PPP loan and the related forgiveness program have been a continued source of confusion as the IRS, SBA, lenders, and borrows all try to get on the same page. While the latest announcement has the most impact on lenders and does not require action from borrowers, you need to be aware of the change and know what to expect.

If your lender issues IRS Form 1099-C incorrectly, please be sure to contact them to request they amend the form.

If you have any questions about this new process, or if you are seeking further guidance through your PPP loan forgiveness process, please reach out to your Aprio advisor or contact Aprio’s dedicated PPP Loan Forgiveness team for assistance.

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About the Author

Tommy Lee

Tommy is the partner-in-charge of Aprio's Retail, Franchise and Hospitality group. His practice focuses on small and mid-sized retail, franchise and hospitality companies and real estate firms. Tommy has expertise in corporate structuring arrangements, multi-state and international tax planning, and corporate and individual tax mitigation.