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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.