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IRS Disallows Deductions For Expenses Reimbursed By Forgiven PPP Loans

May 4, 2020

KSM

On April 30, the IRS issued Notice 2020-32, which states that the expenses that provide the basis for loan forgiveness under the Paycheck Protection Program (PPP) will be non-deductible. While the Coronavirus Aid, Relief, and Economic Security (CARES) Act specifically excludes the loan forgiveness amount from gross income, it is silent on the deductibility of the associated expenses. However, the IRS has determined that Internal Revenue Code Section 265 disallows a federal income tax deduction, which is unfortunate news for small businesses that have received a PPP loan. Unless we receive contrary guidance, businesses should be aware of the tax implications of PPP loan forgiveness and should plan accordingly.

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