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.
Oren Eini, chief executive officer and founder of Hibernating Rhinos, has more than 20 years of experience in the development world with a strong focus on the Microsoft and .NET ecosystem. Recognized as one of Microsoft's Most Valuable Professionals since 2007, Oren is also the author of "Inside RavenDB." He frequently speaks at industry conferences such as DevTeach, JAOO, QCon, Oredev, NDC, Yow! and Progressive.NET. An avid blogger, you can also find him under his pseudonym as Ayende Rahien at http://www.ayende.com/Blog/.
Gerard Brennan has more than 35 years of experience in the municipal bond industry in evaluations, brokering, trading, sales, underwriting and operations. He is the author of Chapter 27, “Municipal Bond Evaluations,” in The Handbook of Municipal Bonds by Frank Fabozzi. A former president and member of the board of governors of the Municipal Bond Club of New York, he launched and remains involved with its annual industry panel series. Brennan is a graduate of Iona College.
Heather Wilde is chief technology officer at ROCeteer, and a technology blogger with the ISACA.
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.