133 (Consolidated Appropriations Act) signed December 27, 2020, Congress overturned the IRS position making these expenses deductible. In Rev Rul 2020-27 the IRS reasoned that if the taxpayer had a reasonable expectation of forgiveness, that they could not deduct the expenses. At our firm, we have been doing this for both S corporations and partnerships. I can tell you that the AICPA has requested guidance on this issue and is requesting that the IRS allow the increase to occur in the year the expenses were incurred providing a matching of the tax-exempt income with the expenses paid. This is a great question and unfortunately, we have not been provided any guidance. So, if you had 4 partners who equally own a partnership, they would be allocated 25% of the PPP forgiveness as tax-exempt income which would provide an increase to their basis.ģ) What if the loan was not forgiven by 12/31/20? Does the basis increase occur in 2021? For simple partnerships (partnerships with no special allocations, no changes in ownership, nobody died, prorata contributions and distributions since inception, and allocations have been proper and prorata in every prior year even years for which you did not prepare, this would be likely based on their % interest. It should be allocated among the partners pursuant to their operating agreement (“OA”) (of course subject to the substantial economic effect “SEE” rules) in the same manner that the deductions giving rise to the forgiven. The forgiveness is treated as tax-exempt income and would increase basis for the partners. Similarly, the TIN should be either the SSN if the owner is an individual or FEIN of the owner if a recognized entity.Ģ) How do we compute basis for a partnership with PPP forgiveness if the loan was forgiven by 12/31/20? It is also possible for a QSUB to retain its FEIN when converting to a SMLLC (filing form 8832 and electing to be a DRE but special rules apply).Īs a note, for a SMLLC, line 1 of a W-9 should be the name of the owner of the SMLLC and NOT the SMLLC. However, many banks may require the disregarded entity to obtain an FEIN for banking purposes. If your client changes name or location, or is a disregarded entity without employees they will not need an FEIN. Also, if you have a partnership and forms an LLC taxed as a partnership, they will not need to obtain a new FEIN. If your client has an existing LLC and already has an FEIN, but subsequently chooses to be taxed as a C or S corporation they do NOT need to obtain an FEIN. Great information is located on the IRS website at. However, even if the IRS does not require the entity obtain an FEIN, the LLC may obtain one for banking purposes. 1) What changes to a partnership structure require the business to apply for an FEIN?Ī newly formed LLCs that has employees, chooses to be taxed as a C or an S corporation, or has more than one owner is required to obtain an FEIN.