IRS Guidance Says No Deduction is Allowed for Business Expenses Paid with Forgiven PPP Loans [Updated July 30, 2020] [open pdf - 663KB]
From the Document: "The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created Small Business Administration (SBA) Paycheck Protection Program (PPP) loans to provide short-term, economic relief to certain small businesses and nonprofits. PPP loans can be used to cover payroll expenses and other enumerated operating costs (e.g., rent, utilities) and can be forgiven if the borrower meets certain payroll and employment retention criteria. The loans are capped at $10 million per borrower. [...] On April 30, 2020, IRS [Internal Revenue Service] issued Notice 2020-32, which clarifies the IRS position, under Internal Revenue Code (IRC) Section 265(a)(1), that PPP-recipients cannot claim a deduction for expenses funded from the forgiven PPP loans. IRS's guidance could reduce the perceived economic benefit of PPP loans, and require some taxpayers to alter how they compute their taxes for 2020 compared to previous years. With this said, many businesses could still find that the economic benefits of PPP loans outweigh the potential costs."
CRS Insight, IN11378
Congressional Research Service: https://crsreports.congress.gov/