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PPP Loan Forgiven? No Deductions.

When the debt forgiveness was initially proposed for Paycheck Protection Program ("PPP") Loans, there were a couple of questions that immediately jumped to mind.  First, would the forgiveness of the debt be income to the business?  (No).   

Second, if the debt forgiveness was not income, would the business be able to deduct the associated payments/expenses?  Was the legislative intent of the PPP Loan to give companies immediate relief now and  relief next year in the form of additional tax relief by permitting companies to deduct the expenses paid with the PPP Loan proceeds?  IRS Notice 2020-32 tells us the answer to the second question is No as well.

While the decision makes accounting and tax sense for the IRS, I question if the decision makes sense if the legislative intent was to help businesses survive and regain their footing when the future is so uncertain. 

The IRS has released guidance warning that if a business takes advantage of a Paycheck Protection Program (PPP) loan, it will be unable to deduct expenses if its loan is eventually forgiven.