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.
Amy Reback is vice president of Schwab Stock Plan Services.
Sean Ventura is chief information security officer at Atmosera.
Rich Gardner is principal security architect at XM Cyber. He has over 20 years of IT experience, with the last 19 years focused on InfoSec and helping telecommunications companies and financial services industry leaders in developing infrastructure and public cloud security architectures and approaching security needs with defense and offensive mindset. Prior to XM Cyber, Rich got his start in information security in 2000, at Global Crossing as a senior security architect. He also worked as a senior security consultant and architect for AT&T, consulting with customers like BNY Mellon, State of Texas, City of LA, ABC Broadcast, and Disney on several large and complex security solutions. Rich has his CISSP, CISM, CGEIT, AWS-SAS while currently pursuing other security certifications. In his spare time, Rich is a black belt in Japanese Jiu Jitsu and is a blue belt in Gracie Jiu Jitsu.
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.