forgiven PPP loans on Schedule M-2 for 1120S

[mini 11]

I am a single owner of S. Corp. I got forgiven PPP loans in 2020 and 2021. 

My  both PPP loan amount was $10,000. Now my schedule M-2 line 6 col(d) and line 8 col(d) show $20,000.

I took distribution $13,000 in 2021 that included 2020 forgiven PPP loan amount $10,000. 

My question is do I need to input my distributions separately on schedule M-2  line7, col(a) 3,000 and col(d) 10,000?

Or it doesn't matter?

Thank you very much in advance!

[JamesG1 · Accepted solution]

Probably does not matter but I would list them separately.

Note that the most current Instructions for form 1120-S page 22 Schedule B Question 12 states:

Question 12

Amounts related to the forgiveness of PPP loans are disregarded for purposes of this question.

[mini 11]

I tried to list distribution separately $3000 on AAA and $10,000 on OAA.  After this change, my stock basis is completely off and Schedule M-2 smart worksheet line G changed to $26,000 from zero.

Maybe I shouldn't bother to list separately? Or should I override?

[JillS56]

You want to list separately but the correct reporting of the PPP loan forgiveness on M-2 of the 1120-S should be:

1. Report on Line 3, Col (d) the amount of the PPP loan forgiveness
2. Report on Line 5, Col (d) the amount of expenses paid with the PPP proceeds forgiven,  

The amount of expenses and the amount of the PPP loan forgiven should offset each other and there should not be a tax consequence or should not affect your stock basis.     

Here is an article that discusses the correct handling of the  PPP Loan Forgiveness.  

You can also get guidance for the correct handling in the Form 1120-S Instructions.

[mini 11]

Thank you very much for your kind reply! Actually I am surprised to see ppp loan reporting is different from last year. I reported  Stock basis was increased because of tax free forgiven ppp loan last year. I think TurboTax doesn't handle correctly reflecting this change yet.  Will there be an update in TurboTax business software? 

[JillS56 · Accepted solution]

I am sure that there are updates still coming out to the TurboTax business software.   Updates to software goes on throughout the tax season.    What I do know and I have learned from my research on the subject of PPP loan forgiveness is that it does affect the basis (in the year forgiven).  

The instructions I previously sent you are the IRS expanded guidance on reporting expenses used to obtain PPP Loan Forgiveness on Form 1120S, Schedule M-2.   This is the guidance from the IRS to reconcile M-2.

The amount of the tax-exempt income (PPP loan forgiveness) would be reported on Schedule K-1,  Box 16 with a Code B.   See Entering PPP Loan Forgiveness

[lmr57]

I was wondering in Turbo Tax Business - S Corps is working on the update for schedule M-2 to properly show the expenses paid by the PPP loan forgiveness.  According to the instructions for the form PPP forgiveness is shown in OAA (this is handled correctly) but then the expenses need to be recorded under AAA line 3 and line 5 in OAA.  I was trying to work around this to get my schedule M-2 corrected but am not having any luck.  

[lmr57]

How do we get Turbo Tax to record this correctly?  I don't see how we put an entry on line 5.

[AliciaP1]

You can enter the forgiven PPP loan(s) total on the About Your Business page under Business Info in TurboTax Business.  This flows through the return and populates Schedule M-2 correctly.

@lmr57

[lmr57]

Thank you for that update. I understand that part and I’m having no issues with that. The instructions For showing the PPP loan forgiveness and expenses on schedule M2 have additional steps. It also says any expenses paid with PPP loans should be shown and included on line 3 in column one and five in column D.  I cannot figure out how to make that work.  Basically the OAA column will not to zero.   I am wondering if there is a way to add in extra items on M2 or if TurboTax will be doing an additional update to the program to match the instructions for this form from the IRS?

[mini 11]

I am waiting for TurboTax to be updated with this change on M2. I could override on M2 form following the IRS instruction, but I am going to wait. I hope TurboTax will hurry up. 😢

[lmr57]

Does anyone at Turbo Tax have any idea when the program will be updated to match the instructions for the M-2 form on the 1120S?  Hopefully they are working on this.

[JillS56]

We are looking into the matter.   In the meantime have you tried completely the M-2 as suggested below.   
 

You want to list separately but the correct reporting of the PPP loan forgiveness on M-2 of the 1120-S should be:

1. Report on Line 3, Col (d) the amount of the PPP loan forgiveness
2. Report on Line 5, Col (d) the amount of expenses paid with the PPP proceeds forgiven,  

The amount of expenses and the amount of the PPP loan forgiven should offset each other and there should not be a tax consequence or should not affect your stock basis.  

Here is an article that discusses the correct handling of the  PPP Loan Forgiveness.  

You can also get guidance for the correct handling in the Form 1120-S Instructions.

@mini 11

[mini 11]

Hi,

As of today, Turbotax hasn't updated with new M2 instruction by IRS.

I was able to override, but Turbo tax gives me error/not done. 

I had forgiven PPP loan $11,800 in 2020 year and $10,800 in 2021 year.  Following IRS instruction (below), I entered combined two PPP loans  $22,600 on line3 col (a) AAA and line 5 col(d) OAA. My stock basis is the same as before I override it.  Can Turbotax experts tell me if I did correctly or not? When will the Turbotax be updated regarding M2 form? 

column (a) on line 1 of the Schedule M-2 includes expenses that were paid in a prior year with proceeds from PPP loans that were forgiven this year, an S corporation should report that amount in column (a) on line 3 and in column (d) on line 5 of the Schedule M-2.

[AliciaP1]

No, you only include prior year (2020) expenses that were paid with PPP funds forgiven this year (2021) if the expenses are being reported on the current year (2021) tax return.

So, in your case listed above, I'm assuming the $11,800 (2020) PPP loan was forgiven in 2021.  If page 1, line 21 of your 1120-S includes payroll expenses related to 2020, but not reported on your 2020 1120-S, then the $11,800 goes on 3(a) and 5(d).  If the $11,800 was forgiven in 2020, then you do not enter this loan anywhere on your 2021 return.

The receipt of the 2021 loan is correctly reported 3(d) but needs to be added to the forgiven amount on 5(d).

Enter this information via forms mode, as you did the "override" you entered on your screenshot.

@turtle11