How will an EIDL Advance be reported for an S Corp? (NOT the loan, NOT the PPP -- the advance that isn't owed back)

Question

The SBA gives out 1k per employee (up to 10k max) to each small business that applies for the EIDL. This advance is not a loan, it's an advance that is NOT owed back. (Also, this is NOT the PPP loan through banks often focused on in the media, this is the EIDL directly from the SBA.) 
 
I'd appreciate any info from a tax lawyer familiar with how such a payment to a business (particularly an S Corp) should be treated when we file for 2020 taxes.

Bruce Alexander Minnick · Answer

Before I respond to your specific tax question I feel compelled to advise you that--if you want to be sure you do not ever do anything stupid that adversely affects either you or your subchapter s corporation--you should now consider retaining an experienced business lawyer as general counsel--available 24/7 to answer this and all other questions.   
This practical solution is NOT very expensive; it will give you great piece of mind and provide immediate access to expert business law advice 24/7. Plus it can save you many thousands of dollars otherwise lost if you screw up bigtime.  
 
Response to your immediate question: While I have NOT read all the specifics about all these brand new temporary fixes provided by the federal government to assist small businesses survive the pandemic and the great recession now appearing directly in front of all of us, I can tell you--based upon 43 years experience as a corporate tax and banking lawyer--that free money given to for-profit companies from any source is ALWAYS taxable in the year received. Period.  
 
Furthermore, since this free gift is coming directly from one of the many arms of the beast in DC, you can rest fully assured that the other (much more dangerous) arm of the beast--that being the IRS--will not EVER forget where THEIR money went. (I am 100% sure you will see a new line on your 2020 tax returns requiring you to report this income, as well as all the $1,200 checks and the $500 checks that the same government has promised to give to adults and kids.) 
      
Finally, this is NOT to say that you should not accept this free gift from the beast--because you may never see another.   
(Closing note:  I recently advised a small business client to use some of the free money to pay my annual retainer due July 1st. lol)

Zaher Fallahi · Answer

Up to $10K EIDL money is a grant and need not be repaid.  EIDL loan other than the grant spent on payroll will be added to the PPP loan. I hope this helps. Good luck. Zaher Fallahi, Esq, CPA (CA &D.C.). 
 
Disclaimer: This is for information purposes, not intended for, and may not be construed, as legal or tax advice. For specific advice please consult your legal counsel

Q: How will an EIDL Advance be reported for an S Corp? (NOT the loan, NOT the PPP -- the advance that isn't owed back)