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.
Mark Buchanan, a physicist and science writer, is the author of the book "Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics."
Mike Price is the chief technology officer at ZeroFOX. He is responsible for leading and setting the vision for the firm’s technology. He oversees all aspects of engineering, research, development and all other technology operations. Before ZeroFOX, he founded the mobile security company Vulnr. Prior to Vulnr, Mike was vice president of engineering at Appthority. In this role, Mike collaborated with the engineering team to build industry-leading products, with a focus on mobile operating system and application security. Previously, Mike was senior operations manager for McAfee Labs.
Mike Byam is the former Chief Data Officer and Commercial Lines CIO of The Hartford, and a current Novarica Research Council Fellow. He can be reached at mbyam@council.novarica.com
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.