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.
Martha Salinas is a senior vice president at Multi Service Technology Solutions
Dr. Jans Aasman is chief executive officer of Franz Inc., a supplier of graph database technology for the Semantic Web. Dr. Aasman's previous experience and educational background include: KPN Research, the research lab of the major Dutch telecommunication company; tenured professor in industrial design at the Technical University of Delft. Title of the chair: Informational Ergonomics of Telematics and Intelligent ProductsCarnegie Mellon University; visiting scientist at the Computer Science Department of Prof. Dr. Allan Newell; rsearcher at the Traffic Research Center of the University of Groningen (The Netherlands); eperimental and cognitive psychology at the University of Groningen, wwith specialization in psychophysiology and cognitive psychology.
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.