The IRS has issued guidance regarding the tax treatment of expenses paid with funds received via the Paycheck Protection Program (PPP). IRS Notice 2020-32 was issued on April 30, 2020 and specifically states that no tax deduction will be allowed for expenses that result in the forgiveness of a PPP loan.
The theory behind this is to avoid a double tax benefit for those that have any portion of their PPP loan forgiven since such forgiven loans are not taxable income. For example, assume a recipient of a $200,000 PPP loan ultimately was able to have $180,000 of this loan forgiven. In this situation, the $180,000 of forgiven PPP loan will not be taxable income and the $180,000 of expenses giving rise to the forgiveness will not be deductible for US. Income tax purposes.
This was an important clarification and will need to be factored in for your 2020 tax projection and planning purposes. Please contact us with any questions and to discuss how this ruling will impact your particular situation.