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.
Cliff Rosenthal retired from the Consumer Financial Protection Bureau but is best known to CUs as the former CEO of the National Federation of Community Development Credit Unions (now nown as Inclusiv).
Stanley Keller is senior partner at Locke Lord LLP who focuses his practice on corporate and securities laws. He chaired the ABA’s Federal Regulation of Securities Committee during the height of the Sarbanes-Oxley era and in that role interacted on behalf of the private bar with the SEC, other governmental officials and the stock exchanges. He served as Chair of the ABA’s Legal Opinions Committee and is currently leading the effort to establish a statement of nationally recognized opinion practices. He also was Chair of the ABA’s Audit Responses Committee. He was active in the ABA’s Task Forces dealing with SEC Attorney Conduct Rules, Corporate Responsibility and Attorney-Client Privilege. As a member of the ABA’s Corporate Laws Committee, he was Special Reporter for the 2016 Revision of the Model Business Corporation Act and before that was Co-Chair of the Task Force that drafted the Massachusetts Business Corporation Law. He also Chaired the Boston Bar Association’s Business Law Section and Corporation Law Committee.
Stuart Murdoch is a senior consultant with 45 years of experience in IT. He has spent the last 25 years working to bridge the gaps between IT, operational processes and business people. He is adept at communicating at all levels – from board-room strategies to shop-floor realization.
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.