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1 1 (May 06, 2020)

handle is hein.crs/govdael0001 and id is 1 raw text is: i% 'N\jq IRS Guidance Says No Deduction is Allowed for Business Expenses Paid with Forgiven PPP Loans May 6, 2020 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created Small Business Administration (SBA) Paycheck Pmoteuion Program (PPP) loans to provide short-term, economic relief to certain small businesses and nonprofits. PPP loans can be used to cover payroll expenses and other enumerated operating costs (e.g., rent, utilities) and can be forgiven if the borrower meets certain payroll and employment retention criteria. The loans are capped at $ I 0 nillion per borrowx er. The initial authorization of $349 billion for PPP loans was exhausted by April 16, 2020. Congress authorized another $310 billion ($659 billion total) for PPP loans in the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139). On April 30, 2020, IRS issued Notice 2020-32, which clarifies the IRS position, under Internal Revenue Code (IRC) Section 265(a)(1), that PPP-recipients cannot claim a deduction for expenses funded from the forgiven PPP loans. IRS's guidance could reduce the perceived economic benefit of PPP loans, and require some taxpayers to alter how they compute their taxes for 2020 compared to previous years. With this said, many businesses could still find that the economic benefits of PPP loans outweigh the potential costs. Background on PPP Forgiveness By rcgulation, payments on interest and principal are deferred for the first six months of the loan. Before that deferment period is over, borrowers can apply for forgiveness on the principal and accrued interest for eight weeks of expenses. According to the CARES Act, full forgiveness of eight weeks of expenses is available as long as the borrower: (1) maintains the same number of full-time equivalent employees during defined time periods and (2) does not decrease salaries and wages by more than 25% for employees that make less than $100,000 in annualized compensation. By rcgulatlon, at least 75% of the Congressional Research Service https://crsreports.congress.gov IN11378 CRS tNStGHT Prepared for M, embers ad C o tt e e C o q g e s s ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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