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.
Sarah Swanbeck is a public policy analyst with expertise in California state and local governance and budget issues. She previously worked in Legislative Affairs for California Common Cause, a nonprofit that advocates for more open, honest, and accountable government. Outside the realm of California politics, Sarah has spent years working as a policy analyst on both state and local issues. As an analyst for the Controller in San Francisco, she worked with a range of city departments to improve the efficiency and effectiveness of their services. She also previously worked for the Public Policy Institute of California and the the California Public Utilities Commission on state energy and water policy. She holds an MPP from the Goldman School of Public Policy at UC Berkeley and a BA in Economics from Wellesley College.
Sarah Anzia is a political scientist who studies American politics with a focus on state and local government, elections, interest groups, political parties, and public policy. Her book, Timing and Turnout: How Off-Cycle Elections Favor Organized Groups, examines how the timing of elections can be manipulated to affect both voter turnout and the composition of the electorate, which, in turn, affects election outcomes and public policy. She also studies the role of government employees and public-sector unions in elections and policymaking in the U.S. In addition, she has written about the politics of public pensions, women in politics, the historical development of electoral institutions, and the power of political party leaders in state legislatures. Her work has been published in the American Political Science Review, the American Journal of Political Science, the Journal of Politics, the Quarterly Journal of Political Science, and Studies in American Political Development. She has a Ph.D. in political science from Stanford University and an M.P.P. from the Harris School at the University of Chicago.
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.