The IRS has put out a Notice (2020-32) which provides guidance regarding the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan pursuant to the Paycheck Protection Program.
Specifically, the Notice states that no deduction is allowed for an expense that is otherwise deductible if the payment of the expenses results in forgiveness of a covered loan pursuant to the Program.
While the CARES Act states that the forgiven amount “shall be excluded from gross income,” the Act is silent as to the deductibility of the expenses. This Notice has the effect of making the forgiveness taxable (via the expense disallowance).
Please contact your SL advisor if you have any questions.