IRS WEIGHS IN ON TAX-FREE LOAN FORGIVENESS OF THE PPP PROGRAM
Typically when a loan is forgiven, it results in taxable income; however, the CARES Act specifically states that loan forgiveness under the Paycheck Protection Program (PPP) will not be taxable. Unfortunately, the IRS just weighed in and rained on the parade.
The IRS issued Notice 2020-32, which clarifies that no tax deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in loan forgiveness under the PPP program. In other words, while the proceeds from the forgiveness of the PPP loan are not taxable, the associated expenses for which the loan proceeds were used (i.e. payroll, interest, rent, utilities) are also not deductible by the taxpayer.
The recent position taken by the IRS begs the question - "Was this the intent of Congress when they drafted the CARES Act"?
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