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IRS Notice 2020-32: A damper on PPP Loans

May 1, 2020

Yesterday the IRS issued Notice 2020-32 providing guidance on the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a Paycheck Protection Program (PPP) loan under the CARES Act.

This means that the benefit of tax-free loan forgiveness to the business has been significantly limited, not only for federal income tax but potentially for state income tax as well.

Per the notice: Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

In other words, this notice:

  • Confirms you can’t claim tax deductions, even if the wages, rent, etc. are normally fully deductible.
  • Will likely create additional administrative tracking complexities for many businesses.

This is likely not the last we’ve heard on this topic. We will keep you updated if additional information becomes available. Contact us if you have any questions.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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