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.
Alison Prosek is a small business health expert at Take Command Health.
Jan-Willem Burgers is Technology Lead Europe of the Distributed Ledger Practice at Capgemini.
Jennifer Adams is a senior forecast analyst, focusing on the business technology and eCommerce space. She leverages Forrester's proprietary survey data, along with extensive industry research, to model and develop forward-looking insights into the technology markets. Recent topics of interest include commerce software, cloud security, and mobile devices and developer tools.
Previous Work Experience
Jennifer has over 20 years' experience working with technology, media, and energy companies in forecasting, strategic planning, financial, and marketing roles. Most recently, she provided forecasting, valuation, and strategic planning services to clients in the technology and media space on an advisory basis. Previously, Jennifer worked in the Institutional Research group at Cowen and Company, publishing research reports on the telecom services sector including RBOCs, mobile operators, long-haul carriers, colocation/hosting providers, and satellite operators .Additional experience includes financial and planning positions at global satellite operator Intelsat; economic consulting firm Putnam, Hayes & Bartlett; British Petroleum; and railroad company CSX.
Education
Jennifer earned an MBA from the University of Chicago and an undergraduate degree in economics from Cornell University. She is a chartered financial analyst (CFA).
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.