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Trade Publication Article
No Simplicity in PPP and ERC Tax Issues
2022
Overview
In November 2020, the IRS and Treasury doubled down by taking a different approach, asserting the taxpayers expenses were not deductible because the expenses were eligible for reimbursement.3 That is, rather than treating the PPP loan as a loan (despite the issuance by a bank, with required repayment if criteria were not met), the PPP was instead a reimbursement program. A business would also be eligible if it suffered a drop of more than 50% of gross receipts (within the meaning of section 448(c) of the Internal Revenue Code).5 We normally view a receipt as an actual collection, however, the reference to section 448(c) led us to the section 448 regulations to clarify that the term gross receipts is viewed based on the taxpayer's accounting method (i.e., cash or accrual). Even though the 2005 temporary regulations specifically include tax-exempt income in gross receipts, Treasury and the IRS divined congressional intent, providing guidance to exclude the forgiveness of the PPP loan if the safe harbor of the revenue procedure is utilized9 Simplicity and the ERC-Wages The ERC implicates (at least) two sets of attribution rules and a list of related parties. The aggregation rules have been utilized for years for various purposes, the most familiar including testing for discrimination for fringe benefits,11 aggregation of gross receipts in the determination of a small business,12 and the determination of a related taxpayer for purposes of various tax credits.13 Subsection 52(a) refers to IRC § 1563 for the controlled group of corporations.
Publisher
Thomson Reuters (Tax & Accounting) Inc
