IRS Issues Notice that PPP Loan Expenses Are Not Deductible

Businesses that have their Paycheck Protection Program (PPP) loans forgiven may not get valuable tax breaks on their expenses, according to new guidance from the Internal Revenue Service. IRS Notice 2020-32 states that expenses associated with PPP loan forgiveness are not deductible. This recent guidance, released April 30, 2020, by the IRS clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act, and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act. IRS said that to the extent the income resulting from loan forgiveness under the PPP is excluded from income, it’s considered a “class of exempt income” under regulations promulgated under section 265. “Consistent with the purpose of section 265, this treatment prevents a double tax benefit,” the IRS said. Notice 2020-32 eliminates otherwise appropriate business tax deductions that were excluded from taxation under the CARES Act. The guidance will impact tax planning for PPP loan borrowers and the overall value of the PPP loan forgiveness program. Please contact your Lurie advisor for questions are guidance. We are here to help.

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Mike Mondelli,

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With more than a decade of federal tax experience, Mike provides advice on federal tax matters. He routinely advises on IRS practice and procedure including examination, appeals, collection, penalty abatement, audit reconsideration, research, captive insurance disclosures, Private Letter Rulings, and other federal tax issues.

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