PPP Loan Taxability - Is it an M-1 adjustment?

[Jon-L]

I tested it and it didn't.  Yes I use ProSeries

[Cecivv]

My question is, If it is not forgiven in 2020, what do you do for the CA/ State side when it is non conforming? I have it as a liability on my books, but was told that I need to M-1 out the amount of loan X % expected to be forgiven as part of the 2020 return.

[itonewbie]

If it's not forgiven yet and the loan is still a liability, what's there to adjust?

[Cecivv]

That is my question.  

[Taxgirla0k]

Yes I agree with the IronMaN

How do you become a Level?

IronMan 

Droll is for someone who is lurking around and reading, watching and in the background

You know like drolling the dispensaries for a good deal on the weed right??? That is a droll

[itonewbie]

But what is non-conforming other than the nonrecognition of income when the loan is forgiven?

[Cecivv]

I am editing this as I see the income for CA will be forgiven when the Fed is forgiven. So now it makes more sense to just leave it as a liability until is is fully forgiven. 

[mkrisk]

Going back to PPP forgiveness crossing years - not an easy answer as it has 1040 basis considerations:  I am waiting for guidance and putting my clients on extension, if necessary.  Here is why it matters to my S-Corp clients:

If I deduct the expenses in 2020, without the PPP forgiveness (as it occurs in 2021) = negative stock basis, resulting in 1040 suspended losses, resulting in my clients paying more in individual taxes in 2020.

IF the PPP forgiveness is forgiven in 2021 and allowed to be recognized in 2020 = positive stock basis, allowing 1040 losses to flow through on Sch E page 2, thus matched expenses and lower individual taxes in 2020

If the PPP forgiveness is forgiven in 2021 and not allowed to be recognized until 2021 = suspended losses in 2020 are then released on the 2021 1040...not horrible, but not ideal

[itonewbie]

@mkrisk  Yeah, as it stands, it's the 3rd scenario.  Tony Nitti has a nice article dissecting the technicality and potential impact of the timing difference.

Sunset of the NOL provisions in the CARES Act will also make a difference in how much and how quickly taxpayers can recoup their tax dollars - maybe an extension would be on the table, depending how on well the economy recovers?

https://www.forbes.com/sites/anthonynitti/2020/12/22/ppp-expenses-are-now-deductible-but-you-may-hav...

[taxartist]

I am in this same scenario with PPP crossing years, negative retained earnings, and distributions in excess of retained earnings as a result. Is the third scenario suggesting to defer the PPP expense recognition until 2021? Or, do I have to create Shareholder loans to balance Schedule L? Or is there some other guidance you can provide to help me get this resolved?