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.
Barry Shteiman is the vice president of research and innovation for Exabeam.
Mikhael Felker is director of information security and risk management for Farmers Insurance. He is also an advisor for the Safe-T Executive Advisory Committee. In the past decade, he has taken on a number of information security roles including engineering, teaching, writing, research and management. His sector experience includes insurance, defense, healthcare, nonprofit/education and technology/Internet, seeing first-hand the variance in information security culture and program maturity. Felker received his M.S. in information security policy and management from Carnegie Mellon University and B.S. in computer science from UCLA. He has over 50-plus publications and has been a speaker for RSAC, CSA, ISSA, ISACA, ISC2 and OWASP events.
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.