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Under the federal government’s Paycheck Protection Program, businesses receiving SBA loans may have the loans forgiven if the proceeds are used to cover payroll, employee benefits, and certain other costs. Under the CARES Act, the forgiveness of the loan is not taxable. However, there was no specific provision in the statute regarding the deductibility of the expenses covered by the forgiven loan.

The IRS has issued Notice 2020-32 holding that these expenses are not deductible since they, in effect, give rise to nontaxable income in the form of the loan forgiveness. 

It appears that although this opinion may be technically sound, the result was not in accordance with Congress’s intent regarding the taxability of the loan forgiveness. It is quite possible that the IRS will rethink their position, or future legislation will correct this. We will keep you apprised of any developments.

If you would like additional information please contact your Gettry Marcus Advisor or Robert Thee, the author of this article.