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.
Bob Kaufman is the Founder and CEO of ConnexPay. Bob started ConnexPay with a passion to remove pain and friction, and a clear purpose to improve the customer experience of paying and getting paid. His strategic foresight and visionary leadership have built ConnexPay into a company that now serves a multitude of businesses spanning several industries globally.
Prior to founding ConnexPay in 2017, Bob spent nearly 20 years at U.S. Bank, where his tenure included serving as CFO of the Payments Services division as well as Senior Vice President, leading innovation projects across the bank's payments division. In addition, Bob served as the General Manager of U.S. Bank's Virtual Pay division, where he led product, marketing, and supplier enablement for all virtual payment solutions, as well as a sales team focused on virtual payments.
Bob earned his bachelor's degree in accounting from the University of Minnesota, and he holds a master's degree in finance and strategic management from the University of Chicago GSB. Bob is a CPA and a CMA.
Anthony Loss is the lead solutions architect at ClearScale.
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.