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"?

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.