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.
Deb is responsible for all aspects of the firm's human resources strategy, including talent management, leadership development and compensation, benefits, and company culture, including environmental, social and governance activities. She works closely with leadership around the globe to build a culture that attracts, retains and develops top talent.
Madhura Chakrabarti leads the People Analytics and Employee Engagement research practices at Bersin by Deloitte. Previous to joining Bersin by Deloitte, Madhura worked for Dell Technologies, where she led the annual global engagement survey for 110,000 employees; culture assessments for mergers and acquisitions; and several people analytics studies. Subsequently, she also served as the Organizational Development (OD) Strategist for Global Operations and Client Solutions, the largest business unit where she led and supported multiple talent management initiatives for the business. Prior to Dell, Madhura worked for Ford Motor Company and Aon Hewitt where her work focused on design and statistical validation of pre-employment assessments used for hiring.
Jonathan Drew is associate director of legal services at Seal Software. Jonathan has spent the bulk of his career working with technology-focused startups, helping companies develop marketing and product strategies to support new product introductions and entry into new markets. At Seal, Jonathan supports Seal’s efforts in risk and regulation, exploring the various ways Seal’s platform can be leveraged to solve business and regulatory challenges.
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.