Question: If my client Eloise receives a Paycheck Protection Program (PPP) loan and the entire loan is forgiven, is she allowed a deduction for the business expenses she paid with the loan proceeds?
Answer: No. IRS Notice 2020-32 describes how business expense deductions are not allowed against loan income that was forgiven under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) §1106(b). Because loan proceeds are considered exempt income, taxpayers cannot take business deductions against this income.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.