Federal Paycheck Protection loans may have hidden tax costs.
Local restaurant owners say this may happen,even if it isn't the intent of Congress.  
Not making the expenses covered by the loan tax free is akin to making them taxed.
Local CPA Mark Zion said the Internal Revenue Service issued a notice to clarify the tax effect of the loans.
THE PPP provides loans based on 2.5 times last year's average monthly payroll, Zion said.
Money used for payroll (75%), rent, utilities and other expenses over 8 weeks after receiving the loan is potentially forgivable.  
The CARES Act clearly stated that any loan forgiveness would not be taxable income. 
Loan forgiveness will not be taxable but the law did not address tax deductibility of payroll and other costs paid with these funds that qualified for forgiveness, Zion said.
The IRS said no deductions will be allowed for an expense that results in forgiveness.
In other words while the forgiveness of the loans will not be taxable, the expenses considered for forgiveness will not be tax deductible. 
"It effectively makes any PPP loan forgiveness taxable," he said.
A company with $100,000 a month in payroll expenses could receives a $250,000 loan. 
If they use the loan to cover $200,000 in payroll and $20,000 in rent in the first 8-weeks, that total amount of $220K will be potentially forgiven. 
But that company will not be able to deduct that $220k in forgiven costs on their 2020 tax return.  That will result in taxable income and a potential tax liability of $50,000 to $85,000.
"This is bad news and I don’t think was the intent of Congress," Zion said. 
"Maybe pressure from the public and their constituents will force Congress to address and overrule the IRS."
The Chronicle has sent his opinion to Sen. Lindsey Graham and Congressman Joe Wilson.