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.
Jennifer Smith is VP of Life Product Strategy at Sapiens, responsible for the direction and roadmap of Sapiens' digital suite of core solutions and eco-partners that support L&A insurers in the North American market. She started her career working for a large life carrier for several years and then moved into the software side. Prior to joining Sapiens, Jennifer held positions at EDS SOLCORP (now DXC Technology), SunGard, and Majesco, focusing on life insurance systems transformations and business process optimization for nearly 25 years.
Niranjan "Ram" Ramaswamy is vice president and general manager of the embedded fintech & banking hub in Fiserv's Banking Division.
Jon Moore is Arizent's Executive Vice President of Events, leading the oversight of the company's portfolio of world-class events. The portfolio consists of 20+ events across top brands including American Banker, Bond Buyer, National Mortgage News, Accounting Today, Financial Planning and Employee Benefits News. He is also part of the company's Executive leadership team.
Previously, Jon served as EVP of Events for Bonnier corp. He has also held leadership roles at Summit Business Media, Family Media and Source Media. He has had the opportunity to run events of all sizes across a wide spectrum of content and has operated events in North America, Europe, Asia, the Middle East and Africa.
Jon holds a BA from SUNY Plattsburgh and lives with his wife and two daughters in Long Island NY.
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.