Protection file

Three is the Magic Number in New Directions for IRS Paycheck Protection Program Eversheds Sutherland (United States) LLP

The IRS recently released a trio of tax proceedings—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’s own words, here is what these guidance documents say:

The 2021-48 tax procedure provides that taxpayers can process amounts that are excluded from gross income (tax-exempt income) as part of the remittance of [PPP] Loans received or accrued: (1) [when] eligible expenses are paid or incurred, (2) when a PPP loan forgiveness request is made, or (3) when PPP loan forgiveness is granted. To the extent that tax-exempt income resulting from the cancellation of a PPP loan is treated as gross revenue under a specific federal tax provision, this revenue procedure applies for the purposes of determining when and , to the extent possible, to report such gross receipts.

The 2021-49 Tax Procedure provides guidance to partnerships and consolidated groups regarding amounts excluded from gross income and deductions relating to [PPP] and certain other COVID-19 relief programs. Specifically: this revenue procedure provides guidance to partners and their partnerships regarding allowances under § 704 (b) of the Internal Revenue Code and the corresponding adjustments to be made with respect to the partners’ bases in their interests partnership 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 basic adjustments for shares of subsidiaries of consolidated groups due to exempt income from tax. tax resulting from certain canceled PPP loans, agreements or the subsidized payment of certain principal, interest and charges.

The 2021-50 tax procedure authorizes eligible BBA partnerships [i.e., those partnerships subject to the centralized partnership audit regime] file the amended Forms 1065 and provide the amended Appendices K-1 no later than December 31, 2021, to adopt the guidelines set out in Rev. Procs. 2021-48 and 2021-49 if certain conditions are met.

ES Observation: This is certainly useful information for companies that have received PPP loans and have followed or are in the process of following the remittance process. But the form of this orientation is also revealing. The Treasury and IRS have issued several forms of informal guidance related to this program since its inception by Congress in March 2020. (Some examples include Frequently Asked Questions, Notice 2020-32, Press release IR-2021-04, Decision on revenue 2021-02, and 2021-20 revenue procedure.) This year, guidance has almost exclusively taken the form of tax proceedings.

A tax proceeding is an official statement of a proceeding published in the Bulletin that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related laws, treaties and regulations or, alternatively that not necessarily affecting the rights and duties of the public, should be common knowledge. Rev. Proc. 89-14.

ES Observation: The change in format and the increase in volume indications suggest that taxpayers and the IRS continue to identify gaps or ambiguities in existing guidance. It also shows a broad effort to issue written guidelines, with Rev. Procs. 2021-20, 2021-33 and 2021-48 from income tax and accounting; 2020-49 from intermediaries and special industries; and 2021-50 from procedure and administration. Given the purpose of this guidance installment, it is possible that the focus of the IRS will shift next to the application.

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