The IRS released Notice 2020-32 (linked below), which clarified that when a taxpayer receives a PPP loan that is forgiven, the forgiveness of the loan is not included in gross income, however the expenses incurred that were paid with the forgiven loan proceeds are not allowed as a deductible expense. For example, assume ConstructionCo incurred $12,000,000 of gross payroll costs during 2020. Also assume ConstructionCo received a $1,500,000 PPP loan that was utilized for payroll costs and fully forgiven. For 2020, their deductible payroll costs will only be $10,500,000 ($12,000,000 less $1,500,000). To read the the IRS Notice, click here.
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