In Announcement 2021-2, published February 1, the IRS directed 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”) that excludes such payments from gross income for US federal income tax purposes. The notice also instructs lenders who have already submitted and / or submitted Form 1099-MISC to report aid payments to issue corrected Forms 1099-MISC. Since February 1, 2020 was the deadline for submitting Forms 1099-MISC to payees, many lenders may need to issue corrected returns.
Section 1112 (c) of the CARES Act directed the Small Business Administration to make payments of principal, interest and fees on behalf of borrowers of certain loans. Specifically, the relief for borrowers was provided by Section 7 (a) Loans (excluding Paycheck Protection Program Loans), 504 Certified Development Company Loans under Title V of the Small Business Investment Act, and SBA Loans under the Microcredit Program. If the loan existed prior to the entry into force of the CARES Act and was not deferred, the relief benefits continued for six months from the first payment due after entry into force. If the loan existed before a deferral at the time the CARES Act came into effect, the relief benefits continued for six months from the date of the first payment due after the deferral ended. If the loan was granted within six months of the date of approval, the relief payments continued for six months from the date of the first loan disbursement.
The CAA provided that Section 1112 (c) relief payments for US federal income tax purposes would not be included in gross income of borrowers. In addition, the CAA stipulates that no deductions will be denied due to the exclusion of income. As a result, post-CAA relief payments will have the same tax treatment as paycheck protection loan waivers under Section 1106 of the CARES Act.