Help with Weighted Average Ownership Percentage Worksheet on 1120S

[iamartin]

We received PPP money in 2020. It was forgiven in March of 2021.  After researching it and asking questions to the community, I entered it as a liability (SBA PPP Loan) on the 2020 S-Corp business taxes as it was not forgiven yet. It showed up on Schedule L, line 21.   It was used for payroll.  The tax return was accepted.  Now on 2021 Turbotax Business (we have a small 2 employee S-corp) it generated a "Weighted Average Ownership Percentage Worksheet. " We've had this business since 1987.  We had a partner that left in 1988.  That is the only time shares were generated.  I'm trying to figure out how to properly fill out the form.  I would greatly appreciate any advice.  Thanks in advance. 

[iamartin]

Might as well make it more interesting. My son was a CPA for a while. For the years he prepared taxes he put the profits into retained earnings so nothing other than that one instance in 1988 were shares generated (if I'm saying that properly).  

[AliciaP1 · Accepted solution]

If there was no change in ownership of the S-Corp during 2021 but this form is showing up there has been an incorrect answer to a question regarding Ownership Changes.

Please follow these steps to verify the correct entry:

1. Within your tax return click About Your Business under the Business Info tab
2. Scroll down to Has an Ownership Change and use the Edit to change the answer to No

[iamartin]

Thank you for answering!  I did check that out and I had answered it "No".  You just made me think harder now and I wonder if it's because I'm trying to figure out where to park the fact that the PPP loan was forgiven and apparently that's tied in with the shareholders which sets off a new set of problems with shareholders.  I found a reference that says "The instructions for Form 1120S provide that the tax-exempt income from the forgiveness of PPP loans should be reported on Line 16b of Schedule K, Form 1120S and Schedule K-1 of Form 1120S".  Do you happen to know if that's true?  I found a statement on TurboTax that's called "Rev. Proc. 2021-48" "Forgiveness of Paycheck Protection Program Loans."  "Applying section 3.01(3) of Rev. Proc. 2021-48 for taxable year 2021.  Tax-exempt income from PPP forgiveness treated as received/accrued: $33020.  Forgiveness of the PPP loan has been granted as of the date the return is filed."  It was actually forgiven in March 2021 but I thought it would OK to put the other choice.  Do you know about this?  Either way, I GREATLY appreciate you trying to help me.  Thanks so much!!

[AliciaP1 · Accepted solution]

Yes, you need to report the forgiven PPP loan proceeds as non-taxable income on your schedules, but the step-by-step process creates a known issue in TurboTax. 

You can follow these steps to work around this and not delay filing your return:

1. In Step-by-step mode,  under Business Info click the About Your Business tab
2. Click Continue until you get to the Forgiven PPP Loan page and answer No.
3. Switch to forms mode, click on Sch M-1 Wks.
4. Under Other permanent income items add the description "PPP loan forgiveness" and the dollar amount in the Per Books column.
5. Scroll down to Other permanent expense items, list the description "PPP funded expenses" and enter the amount of covered expenses for your PPP loan.
6. On the left, click PPP Loan Stmt
7. Scroll to the bottom of the page and respond to the questions on the Smart worksheet

[iamartin]

Thanks so very much!  I'll give it a try tonight and post about it for others like me!  I've found so many helpful hints here thanks to people like you.  God bless you!! Thanks again 🙂 

[iamartin]

I'm speechless! You made this look easy but it wasn't.  I can usually figure these things out but this one messed with my mind especially with the looming deadline and the fact that the PPP loan with forgiveness was an unusual item.  I can't ever thank you enough for your kindness and help!!!  I will remember you FOREVER!!!  Thanks for being a guardian angel!!!  🙂 @AliciaP1 

[iamartin]

@AliciaP1  I have one more question.  On the Schedule M-1 Items Worksheet under "Other permanent income items" it's showing "Forgiven PPP loan" and put the $33,020 under "Per Books" and "Difference".  I can't remember if that was imported from last year or I entered that.  Should that be there?  I'm usually not that incompetent.  Maybe it's the 3 years of the Pandemic!!  

[AliciaP1]

Yes, that's where it carries through and shows up correctly.  You're all good!!

[iamartin]

Thanks sooooooooo much!!!!! Onto the next item! :). 

[LGArizona]

I followed the recommended steps and marked "no" to ownership change, but it still wants me to put number of shares in.  (I don't have shares.  I have a PLLC.)  Is there a workaround to remove this worksheet?

[iamartin]

I'm definitely not an expert but I saw at the bottom of the form it has a button that says, "Delete form".  Hope this helps.  

[iamartin]

@AliciaP1   I'm still jumping through PPP hoops!  There's a question on the 1120-S tax return page 3 question 12 that asks "During the tax year, did the corporation have any non-shareholder debt that was canceled, was forgiven, or had the terms modified to as to reduce the principal amount of the debt?  "No" was automatically checked but the "Yes" box is blue.  I've learned NOT to assume anything and we ARE shareholders so I would think the answer would be "No" BUT I'd like your opinion on it.  I'm sorry to ask so many questions but this is so tricky since I've never done this before.  Thanks so much for your time!!

[AliciaP1]

You are correct - leave it as No.  The questions are there for normal operations...then Covid came and confused things!

@iamartin

[iamartin]

I ended up filing an extension and just saw this.  Thanks so much for your guidance!!  I'm trying to wrap it up.