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Schedule F and Paycheck Protection Program Forgiveness

Now that the 2021 tax filing season is upon us, it seems like the Paycheck Protection Program (PPP) is old news. For the most part, that’s true. After all, most farmers and fishermen at this point know that PPP forgiveness is generally not income if used for eligible expenses. However, towards the end of 2021, the IRS issued Rev. Proc. 2021-48 that has some key takeaways for the preparation of 2021 tax returns.

Rev. Proc. 2021-48 provides 3 options for taxpayers to treat this tax-exempt income from PPP forgiveness as “received or accrued:”

  1. as, and to the extent that, eligible expenses are paid or incurred;
  2. when you apply for forgiveness of the PPP Loan; or
  3. when forgiveness of the PPP Loan is granted.

The instructions to the individual tax return Form 1040 make it quite clear that while PPP loan forgiveness isn’t includable as income, as it is tax-exempt, there are still reporting requirements for the tax return. To that end, taxpayers need to attach a statement to their tax return if there is tax-exempt income due to PPP loan forgiveness. The instructions require that the statement, with “RP2021-48” written at the top, indicate:

  1. A taxpayer’s name, address, and ITIN or Social Security number;
  2. A statement that the taxpayer is applying or applied one of the three choices above, and for what taxable year (2020 or 2021) as applicable;
  3. The amount of tax-exempt income from forgiveness of the PPP Loan that the taxpayer is treating as received or accrued and for what taxable year (2020 or 2021); and
  4. Whether forgiveness of the PPP Loan has been granted as of the date the taxpayer filed their return.

The bottom line is that while PPP loans may be on the tail end of their lifecycle, the information surrounding them is still quite important for preparing an accurate 2021 tax return.

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