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.
Nathan Horn-Mitchem is senior vice president and chief information security officer at Provident Bank.
Amanda LeClair is an analystat Forrester Research serving the needs of application development and delivery (AD&D) professionals. In this role, she helps clients understand the changing enterprise application services market and navigate the new engagement models of leading technology services firms. In her coverage, she explores business applications ecosystems, digital business transformation trends, and technology services spending patterns. Her research covers topics such as co-innovation, outcome-based services engagements, and the changing role of digital studios in services engagements.
Previous Work Experience
Prior to her current role as an analyst, Amanda was a researcher on Forrester's AD&D team. In that role, she contributed to Forrester's coverage of agile development and DevOps, led coverage on managing agile teams, and explored the intersection of design and customer experience with software development. She has extensive primary research experience, having served as research lead on Forrester Data's Global Business Technographics® Developer Survey and having conducted hundreds of research interviews with developers, VPs of technology, CIOs, and CTOs. In her role as a research associate, she contributed to Forrester's research on business technology transformation and technology market sizing.
Education
Amanda holds a B.A. in politics from Saint Anselm College.
Mark Van de Wiel is chief technology officer at HVR. Mark brings a strong background in data replication as well as real-time business intelligence and analytics to his role at HVR. Most recently, at Actian Corporation, Mark led a team of high performing solution architects. Prior to that, Mark developed extensions to Oracle’s GoldenGate replication product. Throughout his 15-plus year career, Mark has expanded his responsibilities from consultant to product management and business development. Mark holds an MSc in industrial engineering and management sciences from the Eindhoven University of Technology.
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.