US Tax Treatment of Paycheck Protection Program (PPP)

The IRS has published Notice 2020-32 to address the US tax treatment of the PPP established by the CARES Act. Under the PPP, an eligible recipient of the loan may use the PPP proceeds to cover payroll costs, interest on mortgage, rent expense and utilities. The recipient can be grated forgiveness of the loan if certain conditions are met. The CARES Act specifically provides that the forgiveness of any amount of the PPP loan is excluded from gross income for US tax purposes. The IRS has now confirmed its view that expenses incurred and covered by the loan forgiveness should be allocated to the exempt income and thus are not deductible. This appears to be an equitable outcome and ensures

no double benefit to the taxpayers.