The IRS just released Notice 2020-32 and it contained some disappointing but not surprising news. Turns out you still can't have your cake and eat it too. There's been some debate surrounding the deductibility of the covered expenses under the Paycheck Protection Program once the loan has been forgiven. Based on how it was worded in the law I was inclined to think that there was a chance that the expenses would still be deductible. The IRS has now officially come out and said...Nope.
This is disappointing, but ultimately not that big of a deal. There are many references throughout the law about preventing double dipping. So, I was hopeful this wouldn't happen, but expected it. If they hadn't made this decision then what we'd be seeing is essentially a tax deduction for getting free money. Sadly that was just too good to be true. It basically still nets out to the same thing though. If the money was taxable you'd get the deduction for it and it'd wind up just being a wash. What we have is nontaxable income and nontaxable expenses, that works out exactly the same.
With my focus being on Taxpayer Representation and Tax Problem Resolution here in Hartford County CT I meet with a lot of people who missed the memo. I've worked many cases where my client had a misunderstanding of the law and/or their obligations and got themselves in trouble. I have absolutely no doubt that I will be meeting with clients next year who get a letter from the IRS because they took both the loan forgiveness and the deduction. If you are having any trouble with the IRS or your state taxing authority, contact me today.
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