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.
Laura Keller is senior director of customer experiences for NTT DATA Services with more than 15 years of experience dedicated to customer experience and people-centered design, Keller is an advocate for designing intuitive and meaningful, end-to-end experiences with business impact in the financial services and insurance sector. Keller has presented at UxPA, IxDA, Service Design Network (SDN) Conferences and has written for UX Matters, Communication Arts and SDN’s Touchpoint Journal.
Joelle Kaufman is the chief marketing officer of Dynamic Signal, an employee communication and engagement platform. With more than 20 years of executive level business development, strategy, marketing, product management, sales and communications experience, Joelle has led teams in media, enterprise technology and consumer internet companies.
Marc R. Lieberman is Chair of the Institutional Investments Group of Kutak Rock LLP.
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.