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.