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.
Jim Capparelli, CPA, is a wealth and tax strategist for JCJ Wealth and Tax Advisory LLC, DBA of Arrowroot Family Office, LLC. He helps families, professionals and business owners integrate strategy, reduce complexity and align their wealth with long-term purpose.
Sachin Kulkarni is executive vice president, head of commercial & specialty insurance and MGA, Americas at Xceedance, a global leader of technology-driven business solutions for the insurance industry. He has more than 20 years of experience in technology and operations across insurance, distribution/supply chain, and other service industries. Prior to Xceedance, Sachin has held roles as global head of IT architecture at Westcon and head of IT strategy for the U.S. and Canada at Marsh.
Brad Vopni is head of institutional at Gemini, a cryptocurrency platform. Prior to joining Gemini, he was head of digital assets at global electronic trading firm Hudson River Trading. Previously, he led Capital Markets at NextShares. He has also held senior leadership roles at NASDAQ, ultimately overseeing its U.S. Equities business.
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.