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.
Levi Morehouse is the founder and CEO of Ceterus.
Sally Welborn currently advises companies who are engaged in improvement of the healthcare industry. Sally has held leadership roles across employee benefits and health care throughout her career and most recently served as the Senior Vice President of Benefits for Walmart.
Owen Tripp is co-founder and CEO of Grand Rounds, a healthcare company that connects patients with local and remote specialty care. Prior to Grand Rounds, Owen co-founded Reputation.com and grew the company into the worldwide leader in online reputation and privacy management; he also held leadership positions at eBay and Accenture (Health and Life Sciences Practice). Owen has been recognized among the World Economic Forum’s Global Technology Pioneers, Goldman Sachs’ Top 50 Builders + Innovators and Rock Health’s Most Beloved CEOs.
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.