Notice 2020-32 states that “no deduction is allowed for an expense that is otherwise deductible, if the payment of the expense results in forgiveness of a covered loan.” In other words, payroll expense is not deductible, if the payroll is paid with forgiven PPP Loan proceeds.
This eliminates a major incentive for companies to use PPP Loans, versus letting employees go on unemployment, if there is no work for the employees to do.
Several members of Congress voiced their displeasure with this guidance. It will likely take legislative action to correct the issue.
We will continue to monitor the situation.