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.
Chuck Harenza is co-chair of Stevens & Lee’s Employee Benefits and Executive Compensation Group.
Mr. Klein is a partner at Kensington Capital Advisors, an independent derivative advisory firm representing borrowers who need advice and counsel related to interest rate, commodity and foreign exchange derivative applications. The practice is national in scope and the Company’s clients operate as non-for-profit (501c3) and municipal organizations, government sponsored entities, tax credit investors, investment banks, and both conventional and non-for-profit real estate developers.Prior to his work at Kensington Capital Advisors, Mr. Klein was a derivative specialist on Bank of America’s derivative trading desk starting in 1995. The client base served by this group encompassed indirect issuers of tax-exempt and taxable municipal debt and public finance professionals, including municipal bond underwriters, financial advisors, municipal reinvestment brokers and bond counsels. The group was responsible for all tax-exempt liability hedging such as swaps for VRDN’s and forward issued municipal bonds. In addition, the group was responsible for all derivative investment products for municipal bond proceeds including forward supply agreements, GIC’s and flexible repurchase agreements for construction funds, reserve funds, debt service funds, escrows, etc.Mr. Klein joined Bank of America (formerly NationsBank) in 1993, after two years with PNC Financial Corporation in the Investment Management and Trust Division. In 1995, Jeff began with the Interest Rate Risk Management Group after working for two years as an analyst in the Bank’s Corporate Finance Department focusing on relationships throughout the southeast and also within industry groups such as Forest Products and Textiles. Mr. Klein’s educational accomplishments include a BS in Business Economics and International Finance from Brown University (1990) and the Danish International School of Business in Copenhagen, Denmark (1988). He has received his series 6, 7 & 63 securities licenses as well as the Chartered Financial Analyst™ (CFA®) designation.
Carl Mazzanti is the founder and CEO of eMazzanti Technologies. His firm specializes in multi-site implementations, outsourced network management, remote monitoring, and support based on Microsoft and related technologies for customers ranging from home office to high-end retail and multinational corporations.
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.