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.
Jodi Chavez is group president of Randstad Professionals, Randstad Life Sciences and Tatum. With more than 20 years’ experience in the staffing industry, she oversees the field organization and provides strategic direction for those businesses, with expertise in team building, strategic planning and execution, M&A, branding, social media and multigenerational leadership.
Ray Ballotta is an advisory partner with Deloitte & Touche LLP and leads Deloitte’s oil & Gas mergers & acquisitions transaction services practice.
Niko J. Caparisos is a principal and health and welfare consultant at Prosperity Benefits of Charleston, South Carolina.
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.