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.
Vishal Sankhla is co-founder and CEO of Outmarket.
Sankhla has dedicated his career to building intelligent, automated systems that replace inefficiency with speed, clarity, and action. He previously led the platform team at Uber, was Director of Engineering at Facebook, and Head of Product at Ethos Life Insurance.
At Outmarket, Sankhla leads a team that delivers a comprehensive AI solution to the manual workflows, siloed data, and outdated processes that cost brokers and carriers billions in lost productivity each year. Outmarket is now trusted by over 200 of the world's most successful insurance agencies to streamline operations, reduce E&O exposure and drive growth. Connect with Vishal on LinkedIn.
Mike Gerhard is chief data and AI officer at BDO USA, where he is responsible for integrating AI into BDO's operations. He has led numerous technology initiatives, including the enterprise digital transformation and innovation program. Additionally, he leads the research and AI development team.
Patrick Armstrong leads the revenue function at ReSource Pro, guiding the company's go-to-market strategy across the retail, MGA/wholesale, and carrier segments. With more than 30 years of sales and insurance leadership, including 17 years as an agency principal, he brings deep industry expertise to helping organizations improve performance and drive profitable growth.
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.