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.
Crystal Valentine is vice president of technology at MapR Technologies.
Todd Inskeep is an RSA Conference Advisory Board member and principal at Booz Allen Hamilton. He has over 30 years of security leadership experience. He focuses on applying leading-edge technologies to solving business problems, building solutions that bridge technology and business. His broad experience includes six months as CISO for a client company, leading information/cyber security program assessments at regional and global companies including oil & gas, hi-tech & global manufacturing, and financial services. Prior experience includes both technology and business leadership including multi-channel consumer banking security & fraud protection, security and identity architectures, and operations. Todd started his career at NSA, working on radio and computer security systems, and holds both a BSEE and an MS in strategic intelligence.
David Wagner has more than 25 years of experience in the IT security industry. He serves as the President and Chief Executive Officer of Zix, a company specializing in email security, and previously held leadership roles at Entrust for 20 years.
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.