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1 1 (October 07, 2020)

handle is hein.crs/govdcde0001 and id is 1 raw text is: Researh Sevice IRS Guidance Says No Deduction Is Allowed for Business Expenses Paid with Forgiven PPP Loans Updated October 7, 2020 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created Small Business Administration (SBA) Paycheck Protection Program (PPP) loans that can be used to cover payroll expenses and certain operating costs and can be forgiven if the borrower meets certain criteria. On April 30, 2020, IRS issued Notice 2020-32, stating that PPP-recipients cannot claim a deduction for expenses funded from the forgiven PPP loans. PPP Forgiveness Borrowers can apply for forgiveness on the principal and accrued interest, if the borrower maintains employment and limits wage decreases. In general, forgiven debt--cancellation of indebtedness income or CODI-is subject to income taxation, unless specifically excluded. Section 1002 of the CARES Act, excludes forgiven loan amounts. Tax Deductibility of Business Expenses The CARES Act has no language on the deductibility of PPP expenses. Under Internal Revenue Code (IRC) Sections 162 and 163, taxpayers can deduct any ordinary or necessary trade or business expenses, which would include PPP-eligible expenses. However, IRC Section 265(a)(1) states that an expense cannot be deducted if it is allocable to a class of income which is exempt from taxation. Tax Practitioners' Concerns About Deductibility of Forgiven PPP Loans In an April 8, 2020, email to the U.S. Department of te Treasury (link requires paid subscription), Cornell Law School Professor Richard L. Reinhold argued that legislation could be needed if Congress Congressional Research Service https://crsreports.congress.gov IN11378 CRS NStGHT Prepaimed for Mernbei-s and Committees 4 o. C- --q . . . . . . . . . .. ..--------------------------------------------------------------------------------------------------------------------------------------------------------------------