The IRS has announced that lenders who make Paycheck Protection Program (PPP) loans that are later forgiven under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) should not file information returns or furnish payee statements to report the forgiveness.
Section 1102 of the CARES Act established the PPP, which allowed qualifying small businesses (eligible recipients) to obtain loans guaranteed by the Small Business Administration (covered loans).
Under section 1106 of the CARES Act, an eligible recipient is eligible for forgiveness of indebtedness for all or a portion of the stated principal amount of a covered loan if certain conditions are satisfied (qualifying forgiveness). Under section 1106(i) of the CARES Act, for purposes of the Code, any amount that (but for section 1106(i)) would be includible in gross income of the eligible recipient by reason of the qualifying forgiveness is excluded from gross income.
Generally, Code Sec. 6050P requires an applicable entity that discharges at least $600 of a borrower’s indebtedness to file a Form 1099-C, Cancellation of Debt, with IRS, and to furnish a payee statement to the borrower.
IRS says “no information returns.”
When all or a portion of the stated principal amount of a covered loan is forgiven because the eligible recipient satisfies the forgiveness requirements under section 1106 of the CARES Act, an applicable entity is not required to, for federal income tax purposes only, and should not, file a Form 1099-C information return with IRS or provide a payee statement to the eligible recipient under Code Sec. 6050P as a result of the qualifying forgiveness.
Filing such information returns with IRS could result in the issuance of underreporter notices (IRS Letter CP2000) to eligible recipients, and the furnishing of such payee statements to eligible recipients could cause confusion. The IRS announcement is intended to prevent any such confusion.