• Targeted Economic Injury Disaster Loan Advances

    New law.  Under ARPA, eligible small businesses may receive targeted economic injury disaster loan (EIDL) advances from the Small Business Administration. (ARPA Sec. 5002) Amounts received as targeted EIDL advances are not included in the gross income of the person who receives the amounts. (ARPA Sec. 9672(1))

    No deduction or basis increase is denied, and no tax attribute is reduced by reason of the gross income exclusion in ARPA Sec. 9672(1). (ARPA Sec. 9672(2))

    In the case of a partnership or S corporation that receives targeted EIDL advances, any amount of the advance excluded from income under ARPA Sec. 9672(1) is treated as tax-exempt income for purposes of Code Sec. 705 and Code Sec. 1366 . (ARPA Sec. 9672(3)(A))

    Since the targeted EIDL advances are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests.

    IRS will prescribe rules for determining a partner’s distributive share of the advance for purposes of Code Sec. 705 . (ARPA Sec. 9672(3)(B))

    Under the single-class-of-stock rule, shareholders receive allocations of tax-exempt income from the targeted EIDL advances in proportion to their ownership interest in the S corporation.

    Effective date. Date of enactment of ARPA, March 11, 2021.

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