On September 22, 2020, the IRS issued IRS Announcement 2020-12 to inform lenders that they should not file Forms 1099-C with the IRS or furnish copies of the Forms 1099-C to borrowers with respect to the  forgiveness of covered loans made under the Paycheck Protection Program (“PPP”).

What Reporting is Usually Required under Section 6050P?

Section 6050P requires that applicable entities report a discharge of indebtedness of $600 or more on the Form 1099-C.  An applicable entity must file the Form 1099-C with the IRS, and furnish a copy of the Form 1099-C to the borrower, by the required due date in the year following the year in which the discharge occurs.

Applicable entities include “applicable financial entities,” which include financial institutions described in sections 581 or 591(a), credit unions, and any other organization “a significant trade or business of which is the lending of money.”  Treasury Regulation § 1.6050P-1(a)(3) notes that filing the Form 1099-C is required “regardless of whether the debtor is subject to tax on the discharged debt.”  The failure to timely and correctly file and furnish information returns is subject to penalties under section 6721 and section 6722.

What Relief Does Announcement 2020-12 Provide to PPP Lenders?

Notwithstanding the general requirement to file Forms 1099-C, IRS Announcement 2020-12 advises lenders that they should not file a Form 1099-C nor furnish payee statements in connection with the discharge of indebtedness under Section 1106 of the CARES Act.  The IRS warns that filing a Form 1099-C in connection with such a discharge could result in the issuance of an underreporter notice (IRS Letter CP2000) to the applicable borrower when the borrower is not required to recognize the discharge as gross income and cause confusion.  The announcement is intended to prevent this from happening.

Does this relief apply to state or local tax reporting requirements?

No.  IRS Announcement 2020-12 grants relief only with respect to federal income tax reporting requirements.  Lenders may be required to report the amount of the qualifying forgiveness under applicable state or local law.  However, a number of states have issued guidance that indicates the loan forgiveness does not result in an addition to the borrower’s income.  Some states, such as California, may require lenders to file copies of Form 1099-C with the state tax authority.  Lenders should monitor state guidance to see if reporting is required.

Tags: CP2000, Form 1099-C, IRS Accouncement 2020-12, Paycheck Protection Program, PPP
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Photo of Molly Ramsden Molly Ramsden

Molly Ramsden’s practice focuses on the design, implementation, and ongoing compliance of employee benefits and executive compensation arrangements.

Molly assists employers of all sizes and industries maneuver the complexities of ERISA, the Internal Revenue Code, and all other federal, state, and local laws…

Molly Ramsden’s practice focuses on the design, implementation, and ongoing compliance of employee benefits and executive compensation arrangements.

Molly assists employers of all sizes and industries maneuver the complexities of ERISA, the Internal Revenue Code, and all other federal, state, and local laws that impact employee benefits and executive compensation.

In particular, Molly frequently advises clients regarding:

  • Health and welfare plans;
  • Tax-qualified retirement plans (defined benefit pension plans, 401(k)s, 403(b)s, etc.)
  • Equity compensation;
  • Nonqualified deferred compensation (top hat plans); and
  • Various other employment and/or benefits related matters.
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Photo of Michael M. Lloyd Michael M. Lloyd

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits…

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits, cross-border compensation, domestic information reporting (e.g., Forms W-2, 1099, 1095 series returns), penalty abatement, and general tax planning and controversy matters. Michael advises large U.S. and foreign multinationals regarding compliance with information reporting and withholding issues, as well as a range of other federal and state tax issues.

Michael completed a three-year term on the IRS Information Reporting Program Advisory Committee (IRPAC) in 2013, during which time he worked with the IRS on FATCA, the Affordable Care Act (ACA or Obamacare) reporting issues, tip reporting, Form 1099-K reporting issues, and civil penalty administration. He has testified before the U.S. Treasury Department and the IRS regarding proposed federal tax regulations.

Michael’s experience includes serving as Tax Manager for a publicly traded multinational, where he managed federal and state tax examinations and appeals, including matters involving foreign taxes. In addition, he performed domestic and international tax planning, including issues related to the repatriation of foreign earnings, U.S. export tax benefits, research credits, and planning for foreign expansion.

Michael has appeared as a guest speaker on IRS Live and at seminars hosted by Tax Executives Institute (TEI), Thomson Reuters OneSource, IRSCompliance, the American Payroll Association (APA), the Blue Cross and Blue Shield Association, the National Association of College and University Business Officers (NACUBO), and the National Restaurant Association.

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