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.
Gilles Gade is the founder and CEO of Cross River Bank (CRB) and has served as its chairman, president and CEO since its inception in 2008. Gilles possesses over 20 years of experience in investment banking and venture capital including Co-Founder and Managing Director of Chela Technology Partners and Chela Internet Ventures, a boutique investment bank and venture fund focusing on emerging technologies and telecommunications; technology investment banker at Barclays Capital; and FIG investment banker at Bear Stearns. Gilles started his career in 1990 at Citicorp Venture Capital.Gade graduated from the MBA Institute IMIP (Groupe IPESUP) in Paris with an MS in International Management.
Daniel Brockley is the head of content at Vanilla, where he and his team support advisors and clients with the resources they need to have more powerful estate planning conversations.
Prior to joining Vanilla, he led an industry-leading content program for TaxJar, a sales tax compliance platform, which was acquired by Stripe. Previously, he led brand, advertising, visual design and content as the director of brand creative at Axon. Before that, he worked as a writer and creative leader on the agency side for clients such as Microsoft, Amazon, Hulu, Starbucks, Homestreet Bank and more.
Laird Nossuli is CEO of iEmergent, a provider of mortgage lending forecasts and analytics to the lending, housing and real estate industries.
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.