On April 30, 2020, the IRS issued Notice 2020-32 addressing the deductibility of expenses paid by the PPP loan.
This notice clarified that no deduction is allowed for an expense (payroll, rent, mortgage interest, utilities) that results in forgiveness of a covered loan under the PPP Program. This treatment is consistent with IRC Code Section 265 that prevents a double tax benefit.
KHA recommends the forgiveness of the PPP loan be shown as other income on your financials (unless additional guidance comes out from the SBA). When your 2020 tax return is prepared by your CPA, there will be an adjustment made for the tax-exempt income and non-deductible expenses.
A link to the IRS notice can be found at: https://www.irs.gov/pub/irs-drop/n-20-32.pdf
As your trusted advisors, we are committed to keeping you well-informed with any new legislation passed by Congress or other authorities as well as any new pronouncements by the Department of Treasury that may affect you. Please do not hesitate to reach out to KHA with any additional questions you may have.
These sources are simply included for informational purposes. KHA Accountants, PLLC, its partners and others do not provide any assurance as to the accuracy of these items or the information included therein. As such, KHA Accountants, PLLC cannot be held liable for any information derived from referenced sources. This by no means is a recommendation to obtain a loan or attempt to apply for a loan. There are many unknowns at this time regarding what other stimulus (grants or other loan options) may become available with pending and future bills, executive orders, or emergency declarations to follow, that may become laws. Consult your legal and business advisors prior to making financing decisions. This is intended for illustrative and discussion purposes only.