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.
Robert Strozak is managing director of Insureon, where he helps lead strategy, finance and operations across the company's digital insurance businesses. He has more than 18 years of insurance industry experience spanning carrier and independent distribution.
Dr. Noah St. John has coached executives for 29 years and has written 27 books, published by HarperCollins, Hay House and Simon & Schuster. He is a public speaker whose keynote addresses include "Tame the Caveman in Your Brain."
Stuart Cobbe is head of product for audit at Thomson Reuters, where he leads the development of technology for audit professionals. His focus is on providing the most automated end-to-end audit workflow without losing the auditor's judgment and the standards a professional audit requires. Previously, he held product leadership roles at an AI-driven financial analytics company, cofounded a financial reporting startup and built an award-winning analytics team from the ground up at a top 10 UK accountancy practice.
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.