The IRS last week declared in Notice 2020-32 that expenses paid using Paycheck Protection Program (PPP) loans that are forgiven under the CARES Act are not deductible.

This is clearly contrary to congressional intent. As the AICPA notes, this eviscerates the benefit of the provision of the Act excluding the forgiveness of the PPP loans from income.

But, it is worse than that. In the normal case, businesses that borrow money to pay deductible expenses get to deduct those expenses when they are paid. If that loan is then forgiven in a later year, there is offsetting cancellation of debt income, but not until that later year when the debt is forgiven. So, the taxpayer actually gets the time-value-of-money benefit for those taxes.

With the IRS's position, taxpayers are actually worse off because they also lose that time value of money benefit.

Is there anyone other than the IRS that truly believes that Congress intended to make taxpayers worse off by including the provision making the forgiveness of the PPP loans non-taxable?