On April 30, 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 loan (covered loan) pursuant to the Paycheck Protection Program” 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.
- Likely creates additional administrative tracking complexities for many businesses.
This is likely not the last we’ll hear on this topic. We will keep you updated. Contact us if you have any questions.