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.
Jennifer Curry is senior vice president of global cloud services at INAP. She is an operational and technology leader with over 17 years of experience in the IT industry, including seven years in the hosting/cloud market.
Russel Davis is chief technology officer and chief operating officer at Vcinity. He has over 25 years of experience in management, operational and technical leadership roles ranging from start-ups to Fortune 500 companies. Prior to joining Vcinity, he was COO and CTO of Bay Microsystems, the co-founder and COO of a well-funded venture developing telecommunications hardware and the service platform managing NFC devices and transactions for transportation and payment systems. He also served as CTO and VP of Product Development for CIC (public company), Director of Services for Everex Systems (acquired by FPG), Field Services Engineering Management at Centel Information Systems (acquired by Sprint) and supervised onboard Electronic Warfare operations in the US Navy.
Corey Needles is senior vice president and general manager at INAP USA.
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.