As most are now aware, a business can obtain a loan pursuant to the PPP of the CARES Act and have some or all of the loan proceeds forgiven if the business uses such loan for its intended purposes (75% payroll and 25% rent, primarily).  There has been speculation that the CARES Act’s exclusion of forgiveness loan proceeds from income means that a business could “double dip” — namely, that the business could both exclude the forgiven proceeds from income and deduct the payroll and rent from income as business expenses.  The IRS has issued a notice that this is NOT the case.

IRS Notice 2020-32 confirms that Section 265 of the Internal Revenue Code applies in this situation, absent further action from Congress. The notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan.

The IRS notice is here:

Section 265 is here:

Mark advises and assists clients in a wide variety of businesses, including construction, manufacturing, information technology and government contract services. He also acts as an outside general counsel for several privately held entities handling a broad range of their corporate, commercial, and employment matters.