Was your PPP Loan Forgiven? Find out if you Should File an Amended Tax Return.
Amending tax returns is not a new phenomenon among taxpayers. You may have probably amended your returns in the past after discovering an error when you have already filed. But this time, a little more than the usual number of amended returns are expected to be filed. This is because it will not only be about original filing errors, but something else, as you will see below.
During the pandemic, the government offered to help businesses through the Paycheck Protection Program (PPP) loans. These loans had rules and regulations that were used to determine how much each company was eligible for and one of the conditions was that the company should apply for the forgiveness of the same loan.
With that said, many borrowers did not attain these PPP loans properly as you will read below. The IRS is now targeting those improperly forgiven loans, based on the latest developments, giving rise to an expected high number of small businesses that may be due to file an amended federal tax return.
Given this huge expectation of amended returns, you might want to carefully read this article, especially if you own a business.
Recent Developments
The IRS announced that all improperly forgiven Paycheck Protection Program loans are taxable. This will see many business owners paying thousands of dollars in taxes for portions of forgiven PPP loans. You may wonder how I know this. Well, I have been predicting this since last year after I realized that many small business owners lied to gain an unfair advantage and get more money than they should have.
There is proof to back this up. You can find this on the Department of Justice website. This is where prosecutions of businesspeople who lied to get their PPP money are posted. However, these posted cases are for those people who have already been caught, which may make you think you will never be caught, but that’s not true because the IRS is still conducting investigations.
Improperly forgiven PPP loans are those forgiven based upon misrepresentations or omissions. For example, you lied about the size of your business and got more money from the PPP program than you were eligible for – or you simply made a calculation error.
In some cases, as I said in my past videos, some business owners allowed their banks to apply for PPP loans on their behalf, and these banks applied for more money than the business was eligible for.
All this money should have been returned. You can watch my full video explaining this on YouTube.
Yes, you may ask, how? Well, remember I have been doing videos warning you precisely about business owners who got more than they should have when they applied for PPP loans?
For example, if you were eligible for $40,000 but made a mistake or lied and applied for $50,000 and got it, you would have improperly gained the extra $10,000.
This is the extra money that the IRS is saying, even if you were forgiven, include it as income so that you pay tax on it. This means businesses that gained hundreds of thousands illegally are liable for thousands of dollars in taxes. It’s messy!
Read below the eligibility criteria for PPP loans.
- An eligible PPP loan recipient:
- is a small business concern, independent contractor, eligible self-employed individual, sole proprietor, business concern, or a certain type of tax-exempt entity;
- was in business on or before February 15, 2020; and
- had employees or independent contractors who were paid for their services, or was a self-employed individual, sole proprietor, or independent contractor.
- The loan proceeds had to be used to pay eligible expenses, such as payroll costs, rent, interest on the business’ mortgage, and utilities.
- The loan recipient had to apply for loan forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information, and meet other legal qualifications.
If your business did not meet any requirements on the list above, you should call me immediately at (202)-618-1297 so we can arrange how to minimize the damage. I will help you file an amended return.
Will this PPP mess come to an end?
This is another question you could be asking. Well, it will come to an end, only if the IRS gets satisfied that they have collected back as much money as possible, especially from everyone who overstated their requirements and got away with more PPP loans than they should have.
What should you do now?
If your PPP loan was inappropriately forgiven (meaning you did not meet one or more of the eligibility criteria above), the IRS encourages you to take steps to come into compliance. These steps include filing amended returns that include forgiven loan proceed amounts in income. Once you do this, you will have to pay tax on that portion of the forgiven loan.
Delaying this could result in painful penalties.
You can contact me now so we can discuss the way forward before you get into a deep mess with the IRS.
Frequently Asked Questions
- How long does it take to process an amended return?
The IRS says that it may take up to 16 weeks to process an amended return. More so, it may take up to three weeks just for it to show up in the IRS system.
- Can I get a refund from an amended tax return?
Yes, you can still get your refund. But take note of these two things: First, if your refund is larger than originally calculated, you will receive the difference from the IRS. Secondly, if the amended return results in a lower refund than you received from the original return, you will be owing the IRS the difference. In that case, you should write a check to the IRS.
- What does it mean when it says amended tax return?
An amended tax return means changes made to a tax return from prior years. If your filed return had errors, you will file an amended return to correct those errors before the IRS comes knocking on your door.
- When can I amend a tax return?
Typically, you can file an amended tax return within 3 years from the original filing deadline, or within 2 years of paying the tax due for that year, if that date is later. But amended returns related to PPP loans, as articulated in this article, should be filed as soon as possible to avoid more interest on penalties.
