In Announcement 2021-2, released on February 1, the IRS instructed lenders not to report loan relief payments made by the Small Business Administration under Section 1112(c) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Announcement reflects a provision in the Consolidated Appropriations Act, 2021 (the “CAA”), excluding such payments from gross income for purposes of U.S. federal income tax. The Announcement also instructs lenders who have already furnished and/or filed Forms 1099-MISC reporting the relief payments to issue corrected Forms 1099-MISC. Given that February 1, 2020, was the deadline for furnishing Forms 1099-MISC to payees, many lenders may have to issue corrected returns.
Section 1112(c) of the CARES Act instructed the Small Business Administration to make payments of principal, interest, and fees on behalf of borrowers of certain loans. Specifically, the relief applied to borrowers of section 7(a) loans (other than Paycheck Protection Program loans), 504 Certified Development Company Loans under Title V of the Small Business Investment Act, and SBA loans under the Microloan Program. If the loan was in place prior to and not in deferment at the time the CARES Act’s enactment, the relief payments continued for six months beginning with the first payment due after the date of enactment. If the loan was in place prior to an in deferment at the time of the CARES Act’s enactment, the relief payments continued for six months from the date of the first payment due date following the end of the deferment. If the loan was was made during the six months following the date of enactment, the relief payments continued for six months from the date of the first payment on the loan.
The CAA provided that the relief payments made under Section 1112(c) are not includible in the gross income of the borrowers for purposes of U.S. federal income tax. In addition, the CAA provides that no deductions will be disallowed as a result of the exclusion from income. This results in the relief payments having the same tax treatment as forgiveness of Paycheck Protection Program loans under Section 1106 of the CARES Act following the enactment of the CAA.