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.
Phil Bullinger is senior vice president and general manager of Data Center Systems at Western Digital where he focuses on accelerating the growth of the company’s platforms and systems business with block, file and object storage solutions for primary, secondary and cloud-scale enterprise deployments. Previously, Mr. Bullinger was SVP/GM at Dell EMC where he was responsible for the Isilon product line, including product planning, hardware and software engineering, production operations and customer support. He was previously the SVP of SAN/NAS storage at Oracle, and the executive vice president and general manager at LSI for the Engenio Storage Group.
Madhan Kanagavel is founder and chief executive officer at FileCloud.
Taylor Macdonald is responsible for managing the Sage Intacct Value Added Reseller (VAR) and CPA channel initiatives. Taylor has more than 20 years of experience building and operating some of the largest and most successful channel programs in the world for financial and ERP providers, including Deltek and Sage.Taylor founded Macdonald Consulting Group in 1990, and was named Sage Software's top worldwide business partner five years in a row. Taylor was also named a Top Channel Executive from VARBusiness and Top 50 Channel Champion from CRN for three consecutive years. He was on the Accounting Today list of the Top 100 Most Influential People in Accounting six times.
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.