Small businesses that manage to get their Paycheck Protection Program loans forgiven may find themselves losing valuable tax breaks, according to new guidance from the Internal Revenue Service.
Companies that qualify for loan forgiveness under legislation Congress approved won’t be able to deduct the wages or other businesses expenses they paid for using the loan, according to an IRS notice published Thursday.
“This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.”
The guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling as the coronavirus has brought the economy to a standstill. The law states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Mark Weiner is chief marketing officer of Balbix.
Kate Prochaska is a vice president and regulatory counsel at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness.
Michael F. Angelo CRISC CISSP, is a chief security architect at Micro Focus. Michael is active in the security community and participates in numerous international and national advisory councils. Currently, he chairs the ISSA International Webinar Committee, is a technology contributor to the BIS ISTAC and has been the co-chair of a working group striving to change the current security export regulations. Michael has also been on the RSA international symposia committee. He has also been a featured speaker at national and international security conferences, including RSA, ISSA, and InfoSec. Michael currently holds 63 US patents, with the majority being in the area of security and authentication; he is a former Sigma-Xi distinguished lecturer. Mr. Angelo was also recognized as Inventor of the Year for the City of Houston and received a TCPA lifetime achievement award. Michael is an ISSA Fellow and was named to the ISSA Hall of Fame.
The tax code permits companies to write off businesses expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.
The ruling adds to the list of stumbling blocks facing businesses as they try to qualify for the Paycheck Protection Program loans.
Small businesses have reported technical issues in trying to apply for the funds, which restarted Monday after the first round of funding ran out after just 13 days.
The program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs and the loans are forgiven if the employers keep workers on the job or quickly rehire laid-off workers.