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.
Mark Weber is senior vice president of development for Infor Healthcare.
Eddie Price is a director with KBKG and oversees the Southern region and its Texas-based operations. He is a Certified Cost Segregation Professional (CCSP) with the American Society of Cost Segregation Professionals (www.ASCSP.org). With over 30 years of cost segregation experience dating back to the Investment Tax Credit period, Eddie is one of the most experienced experts in the industry. Eddie currently serves on the Testing Committee of the ASCSP and is a former Chair of the Education Committee.
Timothy Stanton is a shareholder at Ogletree Deakins. Inside counsel and HR and benefits leaders alike turn to Tim Stanton for advice and representation on their health and welfare and other employee benefit challenges.
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.