IRS Doubles Down On No Double Dip

Executive Summary  

Companies that receive or are reasonably expected to receive forgiveness for Paycheck Protection Program ("PPP") loans cannot deduct expenses for payroll costs, interest on covered mortgage obligation, rent or utilities ("CARES Act Expenses") for which they used PPP loan funds. This position was first published by the Internal Revenue Service ("IRS") in Notice 2020-32 in May 2020. The IRS issued Revenue Rule 2020-27 and Revenue Procedure 2020-51 on November 18, 2020 ("Recent Guidance") to amplify its position in Notice 2020-32.

However, the Recent Guidance does not clarify if CARES Act Expenses can be deducted for tax purposes when PPP loan funds were not used in part or full to pay such expenses or how to allocate deductions if full forgiveness is not received. Thus, further clarification is needed unless Congress passes legislation to overturn the IRS' position.