On April 19, 2021, the Michigan Department of Treasury issued a notice (the “Notice”) announcing Michigan’s conformity to the federal income tax treatment of loans (“PPP Loans”) issued under the Paycheck Protection Program. The Notice also sets forth additional guidance for individual and corporate taxpayers regarding various income tax issues raised by the federal loan program.
As originally established under the CARES Act, any forgiven PPP was excluded from gross income for federal income tax purposes. However, no similar provision was enacted authorizing a deduction of the business expenses paid for by those forgiven loans. This issue was addressed in the Consolidated Appropriations Act (the “CAA”), enacted on December 27, 2020, which provided taxpayers with the ability to deduct the underlying business expenses paid for by the forgiven loan. The Notice makes clear that Michigan will conform to the manner in which the federal government is treating both PPP loan forgiveness and the deductibility of business expenses.
The Notice also provides guidance for both individual and corporate taxpayers relating to the calculation of sales factor apportionment, gross receipts, and the calculation of Total Household Resources when taking into consideration the impact of PPP loan forgiveness.
Finally, the Notice states that additional documentation substantiating a PPP loan is not required for Michigan tax return filing purposes. Taxpayers are not required to include any specific loan documentation, including proof of forgiveness or proof of expenses, with Michigan individual or corporate income tax returns. However, borrowers of PPP loans must retain sufficient documentation of their participation in the PPP loan program as part of their obligation to keep accurate and complete records necessary for an accurate determination of their tax liability.
If you have any questions about how the forgiveness of your PPP loan impacts your Michigan tax liability and the filing of your tax returns, please contact Fraser Trebilcock shareholder Paul McCord.
We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.
Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or firstname.lastname@example.org.