PPP Forgiveness and Form 1099-C
Generally, the Internal Revenue Code and implementing regulations require a lender that discharges or forgives at least $600 of a borrower’s indebtedness to file a Form 1099-C, Cancellation of Debt, with the Internal Revenue Service and furnish a payee statement to the borrower. On September 22, 2020, the Internal Revenue Service (IRS) issued Announcement 2020-12 instructing lenders that make Paycheck Protection Program (PPP) loans to not file information returns or furnish payee statements to report the amount of qualifying forgiveness on such PPP loans.
Under Section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a recipient of a PPP loan is eligible for forgiveness of all or a portion of the stated principal amount of a covered PPP loan upon meeting certain conditions. To the extent that an eligible recipient of a PPP loan receives forgiveness of indebtedness for all or a portion of the stated principal amount of a covered loan under Section 1106 of the CARES Act, Announcement 2020-12 clarifies that a lender is not required to, for federal income tax purposes only, and should not, file a Form 1099-C information return. The filing of such information returns could result in the sending of underreporter notices to the borrowers and will otherwise cause confusion. Accordingly, PPP lenders should ensure appropriate adjustments are made to the institution’s federal tax reporting systems to accommodate the non-reporting of forgiveness.