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.
Michael Welch is a senior engagement manager in Prophet’s New York office, focused on helping clients build the strategies and organizations to compete the digital age. With experience across a range of industries – from insurance, to retail to grocery – Michael works with senior leadership teams to define a vision, strategy and actionable plan for digital transformation. Michael also has experience in implementing large digital transformation programs, specifically in leading operating model and organization design programs.
Steve Weil is information security director at Point B, an integrated managed consulting, venture investment and real estate development firm. Over the past 20 years, he has provided a wide variety of cybersecurity services to hospitals, universities, state government agencies, cities and large companies throughout the United States.
Steven Arnedt, MD, is physician executive of Physician Alignment for Cerner.
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.