The IRS on Thursday released guidance under Notice 2020-32 stating that Companies that qualify for loan forgiveness under the Paycheck Protection Program (PPP) will not be able to deduct the wages or other businesses expenses they paid for using the loan.
The tax code permits companies to write off business’s expenses, such as wages, rent and utility expenses, but generally does not allow write-offs for tax-exempt income.
But under the coronavirus relief law, the PPP loan forgiveness is not counted as taxable income. The IRS said in its guidance Thursday that expenses that result in forgiveness of a PPP loan are not tax deductible in order to prevent a "double tax benefit."
The agency cited Section 265 of the tax code, which states that deductions cannot be taken if they are tied to a certain class of tax-exempt income.
If desired, Congress could override the IRS's stance by passing a law that explicitly allows the deductions.
We are following this closely and will see where this goes over the next few weeks.
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