IRS Notice 2020-32: Payment of Expenses That Result In PPP Loan Forgiveness Are Not Deductible

Foley Hoag LLP
Contact

Foley Hoag LLP

As we have previously discussed, the CARES Act created the Paycheck Protection Program, pursuant to which employers may be able to obtain loans (“PPP loans”) to help cover business expenses during the COVID-19 pandemic. Under the CARES Act, PPP loans may be partially or wholly forgiven if the proceeds are used to cover certain expenses, and the employer is not subject to tax on such loan forgiveness.

The CARES Act, however, did not address whether the business expenses that result in PPP loan forgiveness will be deductible for tax purposes. The IRS answered this question in Notice 2020-32, which was released on April 30th. In the Notice, the IRS concludes that when the payment of business expenses results in the forgiveness of a PPP loan, such as payroll costs or rent, those business expenses will not be deductible for tax purposes. According to the IRS, this treatment prevents a “double tax benefit” and is consistent with Section 265(a)(1) of the Internal Revenue Code, which generally provides that no tax deduction is available for expenses that are paid with tax-exempt dollars.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley Hoag LLP | Attorney Advertising

Written by:

Foley Hoag LLP
Contact
more
less

Foley Hoag LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.