Taxpayers need clarity on coordination of ERC and PPP loans

After the recent enactment of the Consolidated Appropriations Act, 2021 (CAA 2021), P.L. 116-260, taxpayers who obtained loans under the Paycheck Protection Program (PPP) are also eligible to claim the employee retention credit (ERC) but need guidance on how the provisions interact. The AICPA on Friday sent a letter to Treasury and the IRS recommending that such guidance state that the filing of a PPP loan forgiveness application is not an election by the taxpayer to forgo the ERC for the wages reported on the application that exceed the amount of wages necessary for loan forgiveness.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, enacted in March 2020, gave taxpayers two provisions to help them during the economic disruptions stemming from the pandemic: the PPP and the ERC. However, under the terms of the CARES Act, if an employer received a covered loan under the PPP, the employer was not eligible to claim the ERC.

CAA 2021 amended the CARES Act to allow employers that received a PPP loan to retroactively claim the ERC for wages paid after March 12, 2020, but not for the wages used to obtain PPP loan forgiveness. However, it is unclear how the reporting of wages as payroll costs on a previously filed PPP loan forgiveness application affects an employer’s ability to claim the ERC for wages that were included on a loan forgiveness application but did not affect the amount of loan forgiveness.

The AICPA in its letter recommends that the IRS and Treasury issue guidance providing that the filing of a PPP loan forgiveness application does not constitute an election to forgo the ERC with respect to the amount of wages reported on the application exceeding the amount of wages necessary for loan forgiveness.

— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor in chief.