Can IRS Tax My PPP Loan?
Business Owners – Did you know Paycheck Protection Loan forgiveness may not always be tax-free? Here are three things you need to know.
#1
If you had a legitimate business in operation by February 15th, 2020, and took out a PPP Loan, your loan is eligible for forgiveness. However, the Small Business Administration (SBA) recently announced that audits would begin on applications after receiving the filing for forgiveness.
Additionally, the audit can take place even if the SBA has already approved your forgiveness application.
#2
The purpose of these audits is to ensure that the loan met the qualifications required for forgiveness.
Keep in mind that the audit may also seek to verify that you were eligible to receive a PPP loan, that your loan amount didn’t exceed what you were entitled to, and that you used your loan funds properly.
#3
If the audit finds that you did not meet the forgiveness qualifications, you must include the loan proceeds as taxable income.
Additionally, providing false information to the SBA when requesting debt forgiveness can result in fines and, in some cases, jail time.
What to Do If You Are Audited
Once your loan has been forgiven, you are subject to be audited for six years after the forgiveness date. That means it is vital to keep all your records, including:
- Invoices
- Payroll service reports
- Documentation of wages paid to employees
- Federal payroll tax filings
- Any other proof showing that the loan amount was necessary and the forgiveness application was valid
The results of these audits can have severe financial and legal implications for your business.
This is not the type of problem you want to handle yourself. Having an experienced tax attorney vastly improves your chances for a successful outcome.