Is forgiven PPP interest also considered tax exempt income?

[Oregon]

A number of clients have provided PPP forgiveness letters that include forgiven interest (which they never paid). I know the forgiven PPP loan balance is tax exempt income. However, is the forgiven interest also tax exempt? Can't find any guidance on this anywhere.

Assuming it is, appears we'd have to book an entry to debit interest expense and credit tax exempt income to account for the interest "paid" by the forgiveness.

Thoughts?

[sjrcpa]

The forgiven interest is also tax exempt.

Your approach is correct.

[Oregon]

Do you have any sources or guidance you could point to? 

I've looked through the more recent Rev-Procs that reiterate that "no amount is included in the gross income of a recipient by reason of the forgiveness of a PPP loan and no deduction is denied", but have found nothing that specifically talks on the interest component.

Thank you!

[sjrcpa]

If it's not in the latest Rev Proc, maybe the IRS FAQs? Even though they are not authoritative.

I really can't remember where I saw this.

[pamdory]

Thanks, I just saw this for the first time today and was scratching my head.  

[Oregon]

It appears clear that the forgiven interest is tax exempt...what is not clear is whether the accrued but not paid interest is deductible or not. We are leaning towards accruing but disallowing the interest expense but including the forgiven interest in tax exempt income to match the letters.

[Finalyear2023]

This is way after the fact and I cannot put together what to do about the interest.  We as well, received the forgiveness letter that shows the forgiven PPP amount but also shows and additional interest amount.  We didn't receive anything but the original disbursement amount.  Should we have received the interest shown on this letter?  Thank you.

[Oregon]

In cases where clients had received letters with forgiven interest, we typically ended up accruing the interest and then disallowing as a deduction on Sch M-1, and then including the forgiven interest in with the tax exempt interest income as part of the total forgiven loan. 

In the cases where clients didn't have letters, we just included the original loan value.

Never did find any concrete guidance either way.

[Finalyear2023]

Thank you.  Clearly, I'm not fully following.  On the forgiveness letter from the SBA, it shows the loan disbursement amount, the original PPP amount.  Then, Forgiveness Amount Remitted: $XXX in principal and $XXX interest.  So, my dumb question is, who received the interest?  Of course, there was an M-1 adjustment, but we only put the principal amount.  I am missing something.  Thank you.

[sjrcpa]

The bank that gave you the PPP loan got the interest.