Was That Loan Forgiven? The Tax Man Cometh
With tax season upon us, the events of 2020 will soon be reviewed and evaluated by everyone’s best friend, the IRS. Lenders that offered debt forgiveness might have done a favor to distressed borrowers in 2020, but a consequence of that courtesy is that the borrowers’ forgiven debt might be taxable.
This is as good a time as ever to review a report prepared by Grassi Advisors & Accountants whether you are a lender that forgave debt or a borrower that had debt forgiven.
“This issue was noticed early last year,” said deBanked President Sean Murray, “but at the time everyone was so focused on PPP forgiveness, the EIDL program, and government stimulus, that I think the potential consequences of lenders forgiving non-PPP debt for their borrowers were lost in the shuffle. Imagine you’re a borrower that had $100,000 of non-PPP debt forgiven last year and you’re only now about to learn that the IRS may classify that as income. Or worse yet, you don’t even realize it and are told that later on during an audit.”
In May 2020, deBanked labelled this as a hidden tax time bomb that was set to detonate in 2021. And now here we are.March 10, 2021