Financial Reporting Considerations Affecting Stat/GAAP for Income Taxes

Certain transactions will result in changes on financial statements that will be apparent this year to issuers and readers alike. One of the most prominent will be the treatment of forgiven federal Paycheck Protection Program (PPP) loans. Market forces that were largely positive in 2021 will also result in a noticeable difference on financial statements.

Paycheck Protection Program (PPP) Loans

Paycheck Protection Program loans were forgiven in 2021 for many businesses that received the loans in 2020 at the beginning of the COVID-19 pandemic. Since the loans were not yet forgiven at the end of 2020, they were reported as liabilities in 2020 financial statements. Once forgiveness was approved in 2021, these loan amounts were removed from the balance sheet as liabilities and became reported as income.

However, income from forgiven PPP loans is not subject to federal income tax, so it will not be factored into the tax provision for 2021 and, as a result, must be disclosed as a rate reconciling item.

Deferred Tax Liabilities (DTLs)

Many companies had a very good year in 2021 in terms of their stock market investments. That’s a good thing, but there’s a price to pay for the resulting unrealized gains. When you have unrealized gains in an investment portfolio, deferred tax liabilities (DTLs) must be reflected in your financial statement.

The DTLs just mean you’ll have to pay taxes on the gains if and when you sell the investments. Given the sketchy performance of the stock market in the first month of 2022, by the time you’re ready to sell your stocks, there may be some losses to offset the gains. Not a happy thought, but we’ll help you do whatever you can to minimize any damage.