Yes, if a Recipient does not issue Taxpayer Protection Instruments to the Treasury Department in exchange for Payroll Support, the receipt of the Payroll Support is taxable to the Recipient under the Internal Revenue Code (Code).
The legal reasoning behind this conclusion is based on the IRS FAQ from 2023, which explicitly states that if the Recipient does not provide Taxpayer Protection Instruments as compensation for the Payroll Support, the receipt of the Payroll Support is not excluded from the Recipient’s gross income under the Code and therefore is taxable. This aligns with the general definition of gross income under Section 61 of the Internal Revenue Code, which includes all income from whatever source derived unless specifically excluded by another provision. Since there is no exclusion provided for Payroll Support in this context, it is included in gross income and thus taxable.
Sources:
§ 61. Gross income defined
Rev. Proc. 2020-26
