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1 1 (December 10, 2020)

handle is hein.crs/govdczu0001 and id is 1 raw text is: Congressional Research Servkc IRS Guidance Says No Deduction Is Allowed for Business Expenses Paid with Forgiven PPP Loans Updated December 10, 2020 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created Small Business Administration (SBA) Paycheck Protection Program (PPP) loans for payroll expenses and certain operating costs, which are forgiven if the borrower meets certain criteria. On April 30, 2020, the Internal Revenue Service (IRS) issued Notice 2020-32, stating that PPP recipients cannot claim a deduction for expenses funded from forgiven PPP loans. PPP Forgiveness Borrowers can apply for forgiveness on the principal and accrued interest if the borrower maintains employment and limits wage decreases. In general, forgiven debt-cancellation of indebtedness income or CODI-is subject to income taxation, unless specifically excluded. Section 1002 of the CARES Act excludes forgiven PPP loan amounts. Tax Deductibility of Business Expenses The CARES Act has no language on the deductibility of PPP expenses. Under Internal Revenue Code (IRC) Sections 162 and 163, taxpayers can deduct ordinary or necessary business expenses. However, IRC Section 265(a)(1) states that an expense cannot be deducted if it is allocable to income exempt from taxation. Double Benefit A double benefit arises when a taxpayer receives tax-free income (like a forgiven loan) and is also able to claim a tax benefit (like a deduction or a credit) using that income. For example, assume a taxpayer faces a top marginal income tax rate of 37% and takes out a PPP loan for $100,000 that is forgiven by the Congressional Research Service https://crsreports.congress.gov IN11378 CRS NSIGHT Prepared for Membersand Commi ----es o Cong rss----------------------------------

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