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.
Simon Randall is the CEO and co-founder of Pimloc, an AI company changing how global organizations can responsibly manage video content while maintaining public trust. Before Pimloc, he led the OMG Life team to develop and launch the world's first intelligent wearable camera and its associated technology platform licensing, before spinning out the visual classification side of the business to create Pimloc in 2017. He previously worked for a range of global businesses in London, Sydney and Istanbul, bringing with him a wealth of consumer tech experience including 12 successful years at Nokia across go-to-market, marketing, business strategy, insight and planning, global online sales, global performance marketing and product development areas. Prior to Nokia, he worked in a range of creative hot-houses and strategic consultancies across the beverages, banking and tech sectors.
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.