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.
Kelly Stirman is the vice president of strategy at Dremio. In this capacity, he oversees the planning, development and execution of Dremio’s strategic initiatives that are centered on messaging, brand awareness, customer satisfaction and business development. Previously he was VP of strategy at MongoDB where he worked closely with customers, partners, and the open source community. For more than 15 years he has worked at the forefront of database technologies. Prior to MongoDB, Kelly served in executive and leadership roles at Hadapt, MarkLogic, PeopleSoft, GE, and PricewaterhouseCoopers.
Blake Wood is senior VP and director of Product Strategy at Envestnet.
Graham Templeton is a Vancouver-based science and technology journalist specializing in frontier scientific research, security and the intersection of technology and social change. Areas of specialization include biology and biotechnology, astrophysics and astronomy, security and encryption, machine learning and artificial neural networks, privacy and tech law and more.
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.