PPP Guidance: Allowable Tax Deductions for Business Expenses

Posted on May 18, 2020

PPP Guidance Business Expenses - Virginia M&A Transactions

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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We know things are hectic but remember to lean on your advisors (counsel, accountant) for insights they have, as many of these decisions in normal times are made infrequently.

We are here to answer your questions and assist in any way we can.  We will be providing additional insights and updates as we move through this period of uncertainty.


Matt Austin                                                                Scott Zickefoose

Email: maustin@keiteradvisors.com                      Email: szickefoose@keitercpa.com

Phone: 804.433.4184                                                 Phone: 804.273-6253


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