October 17, 2022 - Douglas Myser

IRS advises on improperly forgiven loans. In Revenue Post IR-2022-162, the IRS issued guidance on the fact that they were going to treat improperly forgiven Paycheck Protection Loans (PPL), would be taxable income to those who were found to have done that. The guidance confirms that if a taxpayer misrepresents facts or omits facts on the loan application or forgiveness statement, they would then be deemed not eligible to exclude the forgiveness from income and would have to include that loan in taxable income. Any taxpayer who willfully did this, is being encouraged by the IRS to come forward and get into compliance by either filing an amended tax return (you have three years from the date of the old return to do this), or reporting it to the IRS. IRS advises on improperly forgiven loans.

Most everyone who applied for a PPP loan during the Covid pandemic, did so properly and adhered to the rules the IRS set forth. However, the IRS determined that those that willfully abused the system would not have the loans forgiven, as what they did was a complete misrepresentation of facts when they originally applied for the loans. This has come to light as abuses of the PPP program has also come to light, showing small criminal entities were stealing millions form the program, in one instance from a fund he for children's school lunches. These types of abuse will not be tolerated by the IRS. Those that are found guilty and have to pay tax on the loans, will also be penalized for not reporting the income and have interest added to the amount owed.

The important thing for a taxpayer who did this, is to come forward and correct the problem, so the IRS doesn't open any criminal investigation of the improperly taken funds. The IRS generally will not do that if a taxpayer moves to correct the problem. Otherwise the taxpayer may remain at risk, if the loan amount was large enough. If you messed up and need advice, call our Tax Resolution Services firm.