According to IRS Notice 2020-32, business expenses that are normally deductible in computing taxable business income may not be deductible if the taxpayer uses funds from a forgiven PPP loan to pay such expenses. In its Notice, the IRS “disallows any otherwise allowable deduction under any provision of the Internal Revenue Code…for the amount of any … (business) expense to the extent” said expense was paid for using forgivable PPP loan proceeds, “because such payment is allocable to tax-exempt income.” Section 265 of the Code provides that, “no deduction is allowed … [for an expense on income] wholly exempt from the taxes imposed…” Be wary of this PPP trap to save yourself on any later audit.