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.
Josh Migdal is partner with th Florida boutique litigation law firm Mark Migdal & Hayden. As a trusted counselor and assertive commercial litigator, Josh represents clients in multiple jurisdictions and is known for his work on behalf of the FDIC in the wake of the mortgage meltdown.
Christopher Rentrop is professor of business information technology and controlling at UAS Constance, in Germany.
Mike Fleck is vice president of security at Covata Limited, where he is responsible for managing and directing US operations and brand awareness, credibility and thought leadership related to data security and privacy. He joined Covata in 2017, by way of acquisition. In 2010, he co-founded CipherPoint Software and has since served as its CEO. In efforts to remove the complexity often accompanying cybersecurity, Mike is driving his clients to focus on reducing risk, not administering products. With nearly 15 years of experience in data security and encryption, Mike holds patents for transparent encryption and automated encryption key management. His vast experience with complex Fortune 500 and Federal Government environments includes leadership roles at Vormetric (acquired by Thales), High Tower Software (acquired by NetForensics), Predictive Systems (NASDAQ: PRDS), and Lockheed Martin.
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.