 Internal Revenue Service IRS Tax News! IRS advises that improperly forgiven paycheck protection program loans are taxable. Honestly, wouldn't it be nice if you were the one who gets to determine what's proper and improper? Somebody's like, what do you mean I'm improper? And you're like, well sir, I'll tell you exactly what I mean by improper. Please forgive me for a second as I look up the definition. You see, for the 523rd time this year, I just changed the definition yesterday. And I'm quite certain, my good man, your conduct falls on the improper side of things. And if it doesn't, rest assured it will by tomorrow. I mean, honestly, I'm starting to think I never should have accepted this government money. I saw, at the time, attached to the money as string as thick as the one they used to bind Thor, God of Thunder, with a hook on one side instructing me to insert it somewhere in my face. Assuring me not to worry, it's just one of those new hip face piercings we give out for free with the PPP loan. Anyways, my coach told me to take a lap around the field. Why are you dinking it when I said, Jukey, take a lap! So I kicked the soccer ball far to the left of the goal. Why? But why? Why? Why? Because a miss is as good as a mile. Which means by my calculations, that miss is as good as about four laps around this little field. Strike two! By my calculations, where? Closer to like 4.75 laps to be more accurate. Only one strike away from victory. But whatever, I could spare the change. Spare some of that change, sir. But now watch. Spare some change? It is already completely forgotten that I've given it change. IR 2022-162, September 21, 2022, Washington. The Internal Revenue Service recently issued guidance addressing improper forgiveness of a paycheck protection loan, a PPP loan. There's a link to that here. Let me give a quick recap of the history and some of the issues, and then we'll go into it in more detail. The PPP loan were loans that were issued out during the pandemic time. Special loans aimed specifically at businesses, businesses oftentimes that had to reduce or shut down their businesses during that time frame. And the government also wanted to incentivize other things such as trying to keep employment up, even though the businesses were basically shut down. So some of that stuff was kind of tied to the PPP loan. Now we say it's a PPP loan, but then there were circumstances where you might be able to get the loan forgiven. And in order to get the loan forgiven, you've got to jump through the proper hoops and so on to qualify basically for the loan forgiveness. Now there's issues with a loan forgiveness then that of course came up because if there's a loan and the loan was then forgiven without any consideration for that forgiveness, you would think that would be a kind of income. That's basically free money that went out for that for that. So then the question would be, do you have to record that as income? Because basically now you have income, which is bad for income taxes. So those are some of the issues that are kind of addressed with this. If you got a PPP loan, do you qualify for the PPP loan? When you get the PPP loan, are you going to be able to qualify for it to be forgiven by jumping through the proper hoops and spending the money in the way that they want to spend it and so on and so forth and being able to document that and everything? And then if you are able to forgive the loan, now you basically got free money, then the question is, do you have to report the free money as income? Because basically now it's kind of like usually it would be income because it would be a forgiveness of debt unless they waived the forgiveness of debt having to be counted as income. Okay, so those are some of the kind of issues here. So the guidance confirms that when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions. So taxpayers who improperly received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiveness loan proceeds, amounts and income. So obviously when this whole program was happening, there's a lot of kind of confusion. This is something that's totally new. No one had seen this exact kind of strategy that had been taken. So then, so now of course we're dealing with people that some people might have basically overextended, take advantage of the program to some extent. And the IRS is basically kind of cracking down on some of that is the general concept at this time. So quote this action underscores the internal revenue services commitment to ensuring that all taxpayers are paying their fair share of taxes in quotes that IRS Commissioner Chuck Reddit quote, we want to make sure that those who are abusing such programs are held accountable and will be considering all available treatment and penalty streams in addressing the abuses and quote many PPP loan recipients who received loan forgiveness were qualified and used the loan proceeds properly to pay eligible expenses. However, the IRS has discovered that some recipients who received loan forgiveness did not meet one or more eligibility conditions. So again, you would just expect as the IRS is the government's kind of spewing money out that there's going to be of course abuse to some of these programs is just so now of course they're going to try to crack down on some of that. So these recipients received forgiveness of the PPP loan through misrepresentation or omission and either did not qualify to receive a PPP loan or misused the loan proceeds. So again, one, they might they might have gotten the loan improperly because again at the time, of course, the government was trying to give out money just like every to anyone they could it seemed like at the time right so it's quite possible you would think that people qualified for the loans that didn't do so that shouldn't have possibly and then two, they were forgiving. There's the forgiveness side of things. Meaning you had to jump through the proper hoop spend the money properly to forgive it and so on. And again, I think they were in kind of a rush to do the forgiveness process. And because it's going through the bank and the bank's going to you know the bank has its own incentives on who's going to pay the bank is it going to be the tax the receiving of the loan or is it going to be the government so you know, So it's kind of a it's kind of a mess. In any case, they're cracking down on that. Now, the PPP loan program was established by the Coronavirus Aid Relief and Economic Securities Act. That's the CARES Act to assist small US businesses that were adversely affected by the COVID-19 pandemic and paying certain expenses. The PPP loan program was further extended by the Economic Aid to Hard-Hit Small Businesses, Non-profits and Venues Act, quite a name on that one. Under the terms of the PPP loan program, lenders can forgive the full amount of the loan if the loan recipient meets three conditions. Number one, the loan recipient was eligible to receive the PPP loan so obviously you would have had to be qualified to get the loan would be one of the conditions they would hope to have fulfilled. An eligible loan recipient is a small business concerned independent contractor, eligible self-employed individual, sole proprietor, business concern or a certain type of tax exempt entity was in business on or before February 15, 2020 and had employees or independent contractors who were paid for their services or was a self-employed individual sole proprietor or independent contractor. Number two, the loan proceeds had to be used to pay eligible expenses such as payroll costs, rent, interest on the business mortgage and utility. So that was the other condition of the loan in order to get it forgiven. Once you have the loan, number three, the loan recipient had to apply for loan forgiveness. So obviously once you have the loan, you may have spent the money properly to get forgiveness, but then you got to jump through the hoop of applying to get the actual forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information and meet other legal qualifications. If the three conditions above are not met, then under the PPP loan program, the forgiven portion is excluded from income. If the conditions are not met, then the amount of the loan proceeds that were forgiven but not met the conditions must be included in income and any additional income tax must be paid. Let's read that one more time. If the three conditions are met, then under PPP loan program, the forgiven portion is excluded from income, which of course is what you would kind of like to happen because income is bad for taxes, right? If you got a loan, which would just be a loan, it wouldn't normally be in income except that you then got it forgiven. You jump through all the hoops to get it forgiven, which means it's not really kind of a loan. It's kind of like free money, which looks like income, which would have to be included unless the IRS says not to, which if you jump through all the hoops, you might not have to include it in income. If the conditions are not met, then the amount of the loan proceeds that were forgiven but not met meet the conditions must be included in income and any additional income tax must be paid. So obviously if you got the loan, but then you didn't meet the conditions to get it forgiven, then, but it was forgiven, but you didn't have the right requirements then it looks like income and the IRS at least wants to get tax paid on it. So to report tax related illegal activities related to PPP loans, submit form 3949A information referral. There's a link to that here. Taxpayers should also report instances of IRS related phishing attempts and fraud to the Treasury Inspector General for Tax Administration at 800-366-4484. I won't read that 100 times because there'll be a link to this in the description. Once again, there's links to all that stuff here and there'll be a link to this in the description.