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.
Andy Brown is a director at Wise Owl Training, an organization that provides computer training for businesses and individuals.
John Jureller is managing director at Accordion, the private equity financial consulting firm focused on the Office of the CFO.
Tom Benton, Partner at ReSource Pro is an industry thought leader with experience as an insurance CIO and as an industry analyst and consultant. Tom leverages his experience to help insurers prepare for and implement strategic transformation initiatives. Tom also advises insurance technology providers on how to better align with industry needs and trends.
Tom's passion is to help insurers and their technology providers develop strategic plans to successfully implement innovative solutions for improving customer experience, reducing risks, and increasing operational efficiency. Tom has over 20 years of experience directing successful IT strategies at numerous organizations, including as CIO at an insurance carrier and as CIO / CTO at non-profit organizations. He also has nearly 10 years of experience providing advisory and consulting services to insurers and insurance technology providers, including major core systems vendors, IT services providers, and insurtech startups. Tom's expertise includes IT capability assessment, IT strategic plan development, transformation preparedness, customer experience, and vendor selection.
Prior to joining Strategy Meets Action, Tom served as VP of Research and Consulting at Novarica, Chief Information Officer at Navy Mutual and CIO/CTO at two major nonprofits in the Washington, DC area. He holds a master's degree from MIT and a bachelor's degree from Cornell University.
Tom has contributed to numerous industry reports and insurance publications and has been a frequent speaker at industry conferences and webinars.
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.