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.
Larry Thompson is the president of Veriato. He has more than 20 years of leadership and management experience with domestic and multinational corporations, with a focus on software, telecommunications, distribution and manufacturing. Larry has experience in strategic planning, tactical execution, leading global initiatives, and managing businesses at multiple locations. He has completed the diligence, negotiation, structuring and completion of more than 30 M&A transactions and has extensive experience with audit control, vendor relations, negotiations, financing's, long-term leases, and bank relations. He holds a masters of accountancy from Virginia Tech.
Corte Iarossi has more than 20 years of experience in the group health and cost containment markets. He’s managed sales, account management, network management, vendor relations and marketing teams for large organizations as well as fast moving, entrepreneurial companies. He specializes in enhancing company revenue and profits through new sales, organic growth and streamlining sales administration. He can be reached at 423-505-9128 or via email at corteiarossi@outlook.com.
Michael Podemski is senior manager, risk advisory services, at EY, and immediate past president of ISACA Chicago Chapter.
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.