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.
Steve Durbin is chief executive of the Information Security Forum, an independent association dedicated to investigating, clarifying, and resolving key issues in information security and risk management by developing best practice methodologies, processes, and solutions that meet the business needs of its members. ISF membership comprises the Fortune 500 and Forbes 2000. Find out more at www.securityforum.org or contact him at steve.durbin@securityforum.org.
Robb Lanham is the chief sales officer for HUB International, focusing specifically on the Private Client practice.
He is responsible for the personal insurance growth initiatives across North America and has developed strategic planning for new client acquisition for individuals, as well as for national and international wealth management firms.
With over 25 years of dynamic leadership, Jagadish Kundu has been at the forefront of revolutionizing the insurance and financial services industry. From building domain solutions to driving digital transformation, his visionary approach has reshaped the landscape. Jagadish's achievements include pioneering the establishment of an insurance delivery center, managing a P&L and advising CXOs while leading a 2000-strong IT delivery team. As the global head, Jagadish has previously overseen a strategic business unit focused on implementation of COTS products in insurance & retirements industry and managed a $220 million USD global P&L. His expertise spans product development, product implementation, leveraging cutting-edge technologies like GenAI and data analytics.
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.