Last week the IRS issued Notice 2020-32, in which it determined that that business expenses paid with forgivable funds from Paycheck Protection Program (PPP) loans may not be deducted as business expenses. The CARES Act itself expressly provides in section 1106(i) that PPP loan amounts forgiven should be excluded from gross income, and thus not taxable. However, under the new IRS guidance, that provision is essentially meaningless because the inability to deduct the expenses paid with loan proceeds increases the loan recipient’s gross income by the same amount. On May 5, 2020, a few members of Congress sent the IRS a letter stating that the IRS’s interpretation is contrary to their intent in passing the CARES Act. On that same day, a bipartisan group of six senators also introduced Senate Bill 3612 to overturn the IRS guidance. That bill is currently waiting in the Senate finance committee further action.
We will keep you informed on further developments when we learn them.
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