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The Paycheck Protection Program (PPP) has been authorized to provide over $650 billion dollars in potentially forgivable loans to help small businesses weather the economic downturn associated with COVID-19. The IRS provided additional information through Notice 2020-32 which was issued on Friday May 1st.
In general, PPP loans are forgivable if the loan proceeds are used for certain qualified expenses - payroll, rent and utilities. In Notice 2020-32 the IRS clarifies that any amount of the loan that is forgiven cannot also be used to claim a tax deduction. This prevents “double-dipping” on tax benefits associated with the same expenses. For example, if a company received $1,000,000 in PPP loans and used all of the money to pay its employees, the $1,000,000 loan could be forgiven. If the loan is forgiven, the company does not get to take a tax deduction for the $1,000,000 of salary paid to employees.
More information can be found in IRS Notice 2020-32.