IRS Announcement: Denying Deductions for Paycheck Protection Program (PPP) Loans

Written by Van Trefethen on May 1, 2020

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All information published represents our views at the time it was produced. Access all of Warren Averett’s Paycheck Protection Program by date on our COVID-19 PPP Resource Page

The IRS issued Notice 2020-32 late Thursday nightmaking it clear that small businesses that receive PPP loan forgiveness cannot deduct related expenses. The IRS clarification significantly reduces the benefit of PPP loans. The IRS stated in the notice, “This treatment prevents a double tax benefit. This has been a controversial topic since the CARES Act was signed into law in late March. The Act stated that the loan forgiveness “shall be excluded from gross income.” However, the Act was silent regarding the deductibility of the related expenses.  

The IRS provided this guidance to clear up the confusion. Now, the attention will turn back to Congress and whether the true intent of the law was for the related expenses to also be tax deductible. According to the Wall Street Journal, Senator Chuck Grassley, chairman of the Finance Committee, stated late Thursday, “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible. This notice is contrary to that intent.” (emphasis added) 

Based on Senator Grassley’s comments, it appears the debate is not over. We will continue to monitor this situation and keep you updated on any changes. If you have any questions about how this will affect you, please contact your Warren Averett advisor or complete this form to have a member of our team reach out to you. 

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This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

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