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May 02, 2020

On Thursday, April 30, the IRS released Notice 2020-32. The announcement effectively disallows a tax deduction for any expenses that are paid via a forgiven Paycheck Protection Program (PPP) loan.

The PPP was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a historic $2.2 trillion stimulus package. The loan program allows small businesses to borrow funds equal to 2.5 months of their 2019 payroll from the Small Business Association (SBA). If their loan expenditures meet certain criteria – in brief, spending the money within eight weeks on payroll and other specific expenses – then all (or a portion of) the loan is forgiven.

Generally, when a taxpayer receives loan forgiveness, they are required to report the forgiven amount as income. However, section 1106(i) of the CARES Act explicitly states that income associated with forgiven PPP loans should be excluded from gross income.

The Notice appears to be counter to Congressional intent. Senator Chuck Grassley (R-IA), the chairman of the Finance Committee, voiced his disappointment with the Notice upon its release. The IRS contends that Congress will need to act if a different result is intended.

For further details, click here to read the IRS announcement in full.

If you have questions or wish to discuss these matters, please contact us.

Sincerely,

Abeles and Hoffman, P.C.