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IRS Notice on PPP Expenses Deductibility

By May 1, 2020January 29th, 2024No Comments

Yesterday, April 30th, the IRS released Notice 2020-32, which clarifies a few items related to the Paycheck Protection Program (PPP) loan proceeds utilized for payroll, rent, and other operating expenses.

As many of you are aware, the PPP loans from the SBA were meant to be forgiven, so long as they were used for payroll, as well as other fixed cost operating expenses such as rent and mortgage interest. The CARES Act that created these SBA programs also stated that the loan forgiveness would not be taxable income to the recipient. While that is still the case, the IRS has now determined that if the loan proceeds were forgiven, the expenses that the proceeds were used to pay will not be tax-deductible. This basically makes the forgiven loan proceeds taxable income, but only through the roundabout way of disallowing deductions.

We expect that there will be further backlash from politicians, as well as lobbying organizations such as the AICPA, and that this will possibly be altered in the future. We wanted to be sure that our clients were aware of this slight change, and that our clients were prepared with their 2020 tax projections for this additional taxable income.

We plan to monitor this very closely and will remain vigilant in bringing updates to our client base.