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COVID-19, Paycheck Protection Program, Tax Planning & Preparation

Tax Deductions of Expenses Paid by PPP Forgiven Loan Proceeds

Paycheck Protection Program tax deduction expenses

On April 30, 2020 the Internal Revenue Service (“IRS”) issued Notice 2020-32 which covers guidance for the federal deductibility of expenses paid for Paycheck Protection Program (“PPP”) loan proceeds which are forgiven under the CARES Act.

The PPP loan program has provided loans to many small businesses over the last few weeks and one of the main features of the program is the ability of borrowers to receive forgiveness of the loan used for allowed expenses. The CARES Act made no mention of the ability of a borrower to deduct expenses paid for by PPP loan proceeds.

The IRS is now stating that, with the silence of the Act with regard to deductibility of these expenses, they are applying a section of the Internal Revenue Code (specifically §265 and the Regulations thereunder) to the issue of deducting expenses that were paid for by forgiven loan amounts borrowed under the PPP.

Click on the image below to download a summary of the Notice and its applicability to businesses who received forgiveness-eligible PPP loan.


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