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.
Flora Coleman heads up the global policy and government relations team at Klarna. Before that, she developed the global government relations and social impact team at international money fintech Wise. This follows a decade of senior political advisory work, including three years as a senior legislative advisor to the U.K. Government.
Chris Bennett is a skilled senior leader in risk management technology with over 14 years of direct RMIS experience in client service, sales, and product management. As the Head of Strategy for the Origami Risk core solutions division, Chris is responsible for business development and strategic alliances as well as for delivering new business solutions to insurers, MGAs, TPAs and risk pools. Chris is skilled in both the RMIS and claims administration markets and previously served as Vice President with CS STARS where he was an integral part of the firm's period of rapid growth and high customer satisfaction. For more information on Origami Risk, visit https://www.origamirisk.com/.
Keri Johnson is a director at Stout. She has extensive expertise with SEC reporting, GAAP-compliant financials, acquisitions and divestitures, accounting process improvement and ERP system implementations. She specializes in oil and gas accounting as well as in many areas of technical accounting. Prior to joining Stout, she was the chief accounting officer at EAG Inc., where she led a team that provided accounting services to oil and gas clients.
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.