Notice 2020-32, just issued by the IRS, provides that otherwise deductible expenses that result in forgiveness of a PPP loan pursuant to Section 1106 of the CARES Act will not be deductible in computing the taxpayer’s income.  That is not good news for taxpayers and certainly negates the commonly-used expression that a PPP loan used for the requisite expenses is “free money.”

It is possible, but not likely, that Congress may act in the next Coronavirus bill (assuming there will be such a bill, as many do assume) to state that expenses used to justify PPP loan forgiveness are deductible, even if the Internal Revenue Code or other authority may justify nondeductibility.

Clients are urged to plan for extra cash that may be needed for tax liabilities due to the reduction in deductible expenses.