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Tax Information Release No. 2021-05: Details and Timing of Paycheck Protection Program Loan Forgiveness

Summary

This Tax Information Release, TIR No. 2021-05 dated July 2, 2021, is issued by the State of Hawaii Department of Taxation and ends with the name of Director of Taxation Isaac W. Choy. It revokes TIR No. 2021-03, under which the department had adopted Revenue Ruling No. 2020-27, and answers questions on Paycheck Protection Program loans. It states that PPP loan forgiveness amounts are excluded from gross income for Hawaii tax purposes, but that expenses paid with PPP funds are not deductible when the taxpayer has a reasonable expectation of forgiveness, and that a 2020 return already filed taking the double benefit must be amended. If a loan is ultimately not forgiven, the deductions may be claimed for the year the expenses were paid. Penalty waiver requests are due by October 20, 2021 for returns on extension and December 31, 2021 for amended returns.

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Full text

   DAVID Y. IGE                                                                     ISAAC W. CHOY
       GOVERNOR                                                                    DIRECTOR OF TAXATION

 JOSH GREEN M.D.
      LT. GOVERNOR




                                             STATE OF HAWAII
                                      DEPARTMENT OF TAXATION
                                               P.O. BOX 259
                                           HONOLULU, HAWAII 96809


                                             July 2, 2021

                      TAX INFORMATION RELEASE NO. 2021-05
RE:       Details and Timing of Paycheck Protection Program Loan Forgiveness

         The purpose of this Tax Information Release (TIR) is to provide further guidance regarding
the claiming of deductions for expenses paid with Paycheck Protection Program (PPP) funds. The
pandemic has caused a lot of confusing and last-minute changes in the law affecting the taxability
of the PPP. In TIR No. 2021-03, the Department of Taxation (Department) announced that it was
adopting Revenue Ruling No. 2020-27 in its entirety. Through the issuance of this TIR, the
Department is expressly revoking TIR No. 2021-03, and providing further relief for the proper
filling of Hawaii State tax returns.

                                            PPP FAQs
Are Paycheck Protection Program (“PPP”) loan forgiveness amounts excluded from gross income?

Yes, for Hawaii tax purposes, these amounts are excluded from gross income.

Are expenses paid by a PPP loan deductible on the Hawaii tax return?

If the expenses paid by the taxpayer entitle it to the PPP loan forgiveness, and the taxpayer has a
reasonable expectation of forgiveness, the deductions are not allowed on the Hawaii return.

What is considered a “reasonable expectation of forgiveness?”

Reasonable expectation is based on the taxpayer’s satisfaction of the forgiveness requirements of
the PPP loan program. If the expenses paid by the taxpayer entitle it to the PPP loan forgiveness and
has applied for loan forgiveness, then the taxpayer has a reasonable expectation of forgiveness, and
the deductions are not allowed. Payroll costs, interest on a covered mortgage obligation, a covered
rent obligation, or a covered utility payment are examples of expenses that would qualify the loan
for forgiveness.

Does the State follow the federal “double benefit” treatment of PPP amounts?

No, for Hawaii income tax purposes, the general rule preventing double benefits shall apply to
amounts received from the PPP.

Therefore, if the expenses paid by the taxpayer entitle it to PPP loan forgiveness, and the taxpayer
has a reasonable expectation of forgiveness, the deductions are not allowed.
Tax Information Release No. 2021-05
July 2, 2021
Page 2 of 3


What if I already filed the 2020 Hawaii tax return taking the “double benefit?”

If the expenses paid by the taxpayer entitle it to PPP loan forgiveness, and the taxpayer has a
reasonable expectation of forgiveness, the deductions are not allowed. If a return has already been
filed, the return must be amended to remove any disallowed deductions. If the loan is ultimately not
forgiven, assuming that the expenses paid were otherwise deductible, deductions may be claimed
for the year in which the expenses were paid.

What happens if my PPP loan is forgiven in 2021?

If the expenses paid by the taxpayer entitle it to PPP loan forgiveness, and the taxpayer has a
reasonable expectation of forgiveness, the deductions are not allowed, even if loan forgiveness is
not expected until a future taxable year.

Note: If you file or have already filed the 2020 return without taking the “double benefit,” there
should be no need to amend the return. The return was properly filed with the covered loan
forgiveness being reasonably expected to occur.

How do I file if my PPP loan forgiveness application is still pending?

If the expenses paid by the taxpayer entitle it to PPP loan forgiveness, and the taxpayer has a
reasonable expectation of forgiveness, the deductions are not allowed, even if loan forgiveness is
not expected until a future taxable year. If the loan is ultimately not forgiven, assuming that the
expenses paid were otherwise deductible, deductions may be claimed for the year in which the
expenses were paid.

What if I filed the 2020 Hawaii tax return but my PPP loan forgiveness application is later denied?

If the loan is ultimately not forgiven, assuming that the expenses paid were otherwise deductible,
deductions may be claimed for the year in which the expenses were paid. If a return has already
been filed, the return may be amended to include the deductions for ordinary and necessary
expenses paid with the PPP loan.

Can I request a waiver of penalties and interest incurred from the PPP?
You may send a written request for waiver to our Taxpayer Advocate. All requests must clearly
state the reason(s) for the waiver and must include payment for the total tax due.
Waiver requests are due by October 20, 2021 for returns on extension and December 31, 2021 for
amended returns. Please send the waiver request and payment to:
Department of Taxation
P.O. Box 259
Honolulu, HI 96809-0259
Attn: Taxpayer Advocate
Tax Information Release No. 2021-05
July 2, 2021
Page 3 of 3


        If you have any questions, you may contact the Rules Office by email at
tax.rules.office@hawaii.gov, or call (808) 587-1530.



                                            ISAAC W. CHOY
                                            Director of Taxation

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