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PPP Loan Forgiveness Shouldn’t Hurt Public Charity Status

Posted on Dec. 4, 2020

IRS officials offered assurances to public charities on Paycheck Protection Program loan forgiveness and the public support test.

During December 3 sessions of the American Institute of CPAs Fall Tax Division virtual meeting, agency officials were asked about the effect of PPP loan forgiveness on the public support test under section 509(a)(1) and 509(a)(2) — specifically, whether forgiven amounts may be reported as government grants.

Those amounts can be reported on Schedule A (Form 990 or 990-EZ), “Public Charity Status and Public Support,” as contributions from a government unit in the tax year they are forgiven, according to Margaret Von Lienen, exempt organizations director, Tax-Exempt and Government Entities Division.

Janine Cook, IRS deputy associate chief counsel (employee benefits, exempt organizations, and employment taxes), said the agency plans to address the issue in upcoming Form 990 instructions.

“We anticipate that this is not going to be a problem [for] retaining public charity status if one otherwise would [have] public charity status. So to the extent there are concerns out there, I think I can allay those concerns. But [regarding] our exact approach in language, I will hold back a little bit until we can get the instructions,” Cook said.

In the meantime, Cook encouraged organizations to use a “reasonable, good-faith approach” on the matter.

GAAP vs. Tax

Regarding PPP loan forgiveness, officials were asked about situations in which there is different treatment in audited financial statements under generally accepted accounting principles versus what should be done for tax purposes.

“We’re having some issues with what our folks on the audit side are doing versus what we should do, and wondering whether we should accelerate the reporting of the grant for [Form] 990 purposes even though it’s still showing up as a loan on the balance sheet for financial statement purposes,” Chris Anderson of Maloney + Novotny LLC explained.

Von Lienen acknowledged that there often are differences between GAAP and tax treatments. For Form 990 purposes, the IRS “would want you to follow what the tax treatment is,” she said.

Cook declined to address “when you should flip from a book to a tax reporting mechanism.” But organizations can look at how the PPP process works and consider, before it’s forgiven, what the item would be, and report accordingly on the Form 990, she said, adding that “a reasonable, good-faith approach is kind of the current standard.”

After webinar participants wished Von Lienen a happy retirement, an IRS spokesperson confirmed to Tax Notes that Von Lienen will retire at the beginning of 2021 after 36 years at the IRS.

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