In what has proven to be one of the more interesting seven week periods in my thirty plus years of work as a practicing CPA keeps getting more interesting. Last night after most of you had probably unplugged and retreated to watching your favorite shows on Netflix, Amazon Prime or Hulu the IRS releases Notice 2020-32. This notice provides guidance regarding the deductibility for Federal income tax of otherwise deductible expenses incurred in a trade or business when the taxpayer receives a loan under the Paycheck Protection Program. The clarification states that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan and the income associated with the forgiveness is excluded from gross income under the CARES Act.
Since the PPP came out, fellow tax professionals and I have been debating this very point concerning if expenses paid by the PPP loan funds would be tax deductible. Some have thought that you could still deduct the expenses since the CARES act did not say otherwise. Others thought that this would be considered “double dipping” and would be too good to be true that you could get free money, not include in income the loan proceeds and still deduct the payment of the eligible PPP expenses. Is this the end of it, probably not! Many still feel that the IRS is in conflict with what the legislature had in mind when they crafted the CARES Act. Stay tuned as I am sure more information and conjecture is to come.
by Scott A. Sagan, CPA Partner
Co-Managing Director, Tax Department