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IRS Clarifies No Double Deduction for Expenses Paid with Forgiven PPP Loan Debt

IRS Clarifies No Double Deduction for Expenses Paid with Forgiven PPP Loan Debt

May 1, 2020
By Tonneson
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On April 30, 2020, the Internal Revenue Service (IRS) issued Notice 2020-32 which clarified that no deduction is allowed under the Internal Revenue Code (IRC) for an expense payment which resulted from a Paycheck Protection Program (PPP) loan that was forgiven. To the extent that a portion of a PPP loan is forgiven, an equal portion of the expenses associated with the forgiveness are not deductible on your business return. Expenses that are eligible for forgiveness are largely payroll costs but also qualifying rent, mortgage interest and utility payments.

This IRS ruling is consistent with prior laws and regulations regarding tax exempt income. Loan forgiveness under the PPP loan rules is classified as tax exempt income under the CARES Act. This notice removes the double benefit of having the loan forgiveness be exempt and allowing a deduction of the expenses associated with the forgiveness.

It is not clear if Treasury intended this result; however, the IRS’s interpretation is correct under current laws. Therefore, unless Treasury specifically addresses and promulgates an additional law specifically allowing the deductions, the IRS’s interpretation will stand.

You will find Notice 2020-32 on the IRS website.

Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.