PPP Guidance: Allowable Tax Deductions for Business Expenses
Posted on May 18, 2020
By Scott Zickefoose, CPA, CM&AA, Transaction Advisory and Tax Senior Manager
PPP Guidance on Allowable Tax Deductions for Business Expenses
The IRS issued Notice 2020-32, which provides Paycheck Protection Program (PPP) guidance in regards to the deductibility for Federal income tax purposes of expenses incurred in a taxpayer’s trade or business when the taxpayer receives a Paycheck Protection Program loan.
Paycheck Protection Program: Guidance on Deductibility of Business Expenses Incurred” Excerpt:
This notice clarifies that no deduction is allowed under the Internal Revenue Code (“IRC”) 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 CARES Act. This speaks to expenses categorized as “allowable uses” of PPP loan proceeds, as defined in the CARES Act, such as payroll costs, rent, utilities, and interest.
IRS NOTICE 2020-32 and IRC SECTION 265 Prevent a Taxpayer Double Benefit
The IRS relies on IRC Section 265(a)(1) and Income Tax Regulation Section 1.265-1 to support that deductions (even if otherwise allowable) attributable to classes of tax exempt income cannot be deducted for income tax purposes. The purpose of IRC Section 265, and this Notice, is to prevent a double benefit to taxpayers.
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