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.
Chris Raimondo leads EY’s Robotics and Intelligent Automation practice for the Insurance sector. Chris has more than 15 years of Insurance process improvement and technology experience. In addition to leading US- and Canada-based insurance organizations through large-scale operational transformation programs, Chris has been involved as a business architect and program advisor in insurance operational and technology transformation programs across Europe, Asia-Pacific and Australia.
Rob Dietz is a Principal in the Advisory Services practice of Ernst & Young LLP. He has more than 20 years of experience in Property and Casualty (P&C) insurance. His work in the P&C insurance industry includes business and technology transformation, business process reengineering, software evaluation and selection, business case development and managing the delivery of large-scale technology implementation programs in onshore and offshore models, including multiple full lifecycle implementations of core insurance systems across a variety of platforms.
Gregg Dooge is a partner and business lawyer with Foley & Lardner LLP. Since 1984 he has practiced in the employee benefits area representing employers with respect to ERISA and tax issues that arise in connection with the executive compensation, deferred compensation, pension, profit sharing and welfare benefit plans that they sponsor. He is chair of the Employee Benefits & Executive Compensation Practice and a memb
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.