ABA Seeks Tax Reporting Exemption for PPP Loan Forgiveness Income

The American Bankers Association today wrote to congressional leaders urging them to exempt Paycheck Protection Program forgiveness income from tax reporting. Under the IRS code, “any applicable entity that discharges an indebtedness of any person of at least $600 during a calendar year must file an information return on Form 1099-C, Cancellation of Debt, with the IRS,” the association noted. “The regulations further require that upon an ‘identifiable event,’ discharged indebtedness must be reported on Form 1099-C, regardless of whether the debtor is subject to tax on the discharged debt under Sections 61 and 108 or otherwise by applicable law.”

In the absence of an exception, ABA noted that banks “may be required to report on Form 1099-C any amounts that are forgiven in situations where a debtor meets the requirements of the CARES Act to have their PPP indebtedness forgiven,” which could generate “confusion and concern” among taxpayers who have been operating under the assumption that PPP debt forgiveness is non-taxable.

ABA also flagged several operational issues that would arise if Form 1099-C reporting is required, noting that banks would have to set up new systems and processes to capture and report the information.