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COVID-19 Relief Law - IRS Guidance for PPP Expense Deductions

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Internal Revenue Service ("IRS") Notice 2020-32 provides that any otherwise deductible expenses that result in forgiveness of a PPP loan pursuant to Section 1106 of the CARES Act will not be deductible in computing the taxpayer’s income.

Notice 2020-32 references PPP loan forgiveness is not taxable income to the taxpayer, but is silent on deductions for expenses paid with loan proceeds.

"Neither section 1106(i) of the CARES Act nor any other provision of the CARES Act addresses whether deductions otherwise allowable under the Code for payments of eligible section 1106 expenses by a recipient of a covered loan are allowed if the covered loan is subsequently forgiven under section 1106(b) of the CARES Act as a result of the payment of those expenses. This Notice addresses the effect of covered loan forgiveness on the deductibility of payments of eligible section 1106 expenses."

While it is unclear if Congress will make any changes in futures CARES bills, for the immediate future, taxpayer's must proceed cautiously with the usage of any loan funds received. This issue will likely be litigated in U.S. Tax Court, but until then please contact our firm with any questions relating to the deductibility of your loan funds, Fazzio Law is in your corner.

To view Notice 2020-32 in entirety link here: https://www.irs.gov/pub/irs-drop/n-20-32.pdf

Category: COVID-19 Relief Law

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