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.
Kristen Rampe, CPA, is the managing partner of Rosenberg Associates. She is a nationally known consultant to CPA firms and a frequent speaker at practice management conferences. She specializes in helping small to mid-sized firms with partner compensation, partner agreements, buyouts, strategic planning and retreats, firm governance, and leadership development. She has co-authored four books along with Marc Rosenberg, CPA, including CPA Firm Management & Governance, CPA Firm Partner Retirement/Buyout Plans, What Really Makes CPA Firms Profitable?, and The Role of the Managing Partner. She spent 10 years in public practice with Big Four powerhouse PwC and top 50 ranked Frank Rimerman in San Francisco before founding her consulting practice in 2011 and merging with Marc Rosenberg in 2022. She was named Woman to Watch by the California Society of CPAs in 2011, 40 Under 40 by CPA Practice Advisor in 2015, and Top 100 Most Influential People in Accounting by Accounting Today for several years. Kristen holds an active CPA license with the state of California. She has been featured by Fortune and Investor's Business Daily. Kristen is a graduate of Butler University.
Paige E. Pidano is a managing director and senior associate general counsel at The Clearing House Association.
Jay Ryan is an executive vice president for Accuity with responsibility for Accuity’s Americas & Global sales team.
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.