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.
Joe Salesky is CEO of CRMNEXT, the largest global provider of CRM in financial services, where he is responsible for the company’s entry into the U.S. market. A seasoned expert in software and financial services, Joe has spent more than 25 years developing and delivering disruptive technology-enabled solutions. He holds 21 patents on technologies currently used by both consumers and large enterprises, including mobile banking and the original patent for web-conferencing. A luminary in his space, Joe has deployed mission critical systems at more than half of the Fortune 500 companies and is a respected speaker at industry and media events. He has been quoted in leading national, international and industry publications and has led his companies to achieving numerous prestigious awards.
CJ Aberin is a principal at KBKG and oversees the Green Building Tax Incentive practice. Over the last several years, He has performed Green Building Tax Incentive studies and cost segregation for clients in various industries that range from Fortune 500 companies to individual real estate investors. Aberin is accredited to certify energy efficient tax credits and is one of the first professionals in the country to earn the highest level of industry certification in cost segregation. He currently co-chairs PrimeGlobal’s Construction & Real Estate Group, which has over 200 members.
Gary Hecht, Ph.D., is associate professor of accountancy and PwC faculty fellow in the Gies College of Business at the University of Illinois at Urbana-Champaign, as well as an instructor on Coursera. Gary primarily teaches managerial and cost accounting, Ph.D. research seminars, and accounting analytics courses. Gary’s primary research interests include subjective performance evaluation and strategic performance measurement systems.
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.