solved Background: The accountant for George’s Plumbing, Inc. has approached you

Background:
The accountant for George’s Plumbing, Inc. has approached you for some tax advice about how to
handle some items on the income tax return for the business. The business is a C corporation. The
corporation is a calendar year end, cash basis taxpayer. The business suffered a significant downturn in
2019 due to COVID so in 2020 the business obtained a Paycheck Protection Program (“PPP”) loan of $2
million to cover payroll, employee health care costs, rent and utilities. The loan covered all the costs so
you can safely assume all of the $2 million dollars was used to pay for the cost of payroll, employee
health care costs, rent and utilities.
The business now wants to apply for the forgiveness of the PPP loan but needs advice for the following:
1. Was the PPP loan taxable to George’s Plumbing, Inc. when it was received in the 2020 tax year?
2. Can the expenses that were incurred by the business in 2020 for the costs of the payroll, health
care costs for the employees, rent and utilities be claimed as in income tax deduction on the
2020 income tax return?
3. If the business applies for forgiveness of the loan in 2021 will the forgiveness of the debt be
regarded as cancellation of debt income (“CODI”) and taxable to the corporation?
You research should consider the following (but it is not an exhaustive list):
IRC §61
IRC §108
IRC §162
IRC §163
IRC §265
Your responsibility:
Prepare a tax research memo addressing the question that has been raised. Please note that if the tax
memo is not in the required format and/or contains very little analysis you will receive a zero (0) for the
assignment. All good faith efforts are capable of receiving a minimum of 60% but less than a good faith
effort will be awarded zero points.
You will need to support your conclusion using primary sources of tax law. Your textbook is NOT
primary authority nor are IRS Publications
You must use proper citation form in your memo (see Chapter 2 for help with citation form). The form
for this communication should be professional and in the form of a tax research memo (example posted
on Blackboard and a similar example in your textbook). Do yourself a favor and look at the grading
rubric before you submit.
© 2021. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Violation of copyright will be
subject to prosecution and considered Academic Dishonesty
This memo should be whatever length you feel is appropriate to resolve the issues. We do NOT use a
bibliography or list of references in a tax research memo. We do not include Background in a tax memo.
You will see that citations are within the text of the document in the example. Once a court case has
been cited in full, it can be referred to using simply the name in italic