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.
Morten Unneberg is CEO of Insurope SC/CV, Insurope Services, Inc., and Insurope Business Services Co., Ltd. Morten has more than 30 years of experience with employee benefits and has been involved in international operations for the last 25 years. Prior to joining Insurope in 2012, he was a Senior Executive with Storebrand in Norway, one of the leading insurance companies in the Nordics. He has also held various sales and sales management positions in Norway and in the USA.
Berkley Charlton is the VP of Product Management at Smarty, a leader in address data intelligence. Prior to Smarty, Charlton worked at Pitney Bowes Software as their managing director of product management. He led the global data business and geocoding business in creating an entire suite of location intelligence, geocoding and data products with their enterprise location intelligence portfolio. Charlton also worked as the VP of strategy and business development at Gadberry Group, where he managed product strategy for geocoding and data products.
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.