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.
Denise M. Tyson is the CEO and founder of Schaefer City Technologies. Tyson is a financial and operational management executive with extensive experience in the insurance industry, including insurtech startups, mergers/acquisitions, reorganizations, and financially challenging situations. She has held C-level positions with multiple insurance companies since 2000. She was the founder of Simplicity, Inc. an insurtech startup focused on pay-as-you-go personal auto insurance; the president of Go Insurance Company, part of a fully integrated insurtech organization; and the first EVP and CFO of Doma (fka States Title, Inc.) an insurtech company transforming the title industry.
Tyson started her finance and accounting career in public accounting in New York City working for KPMG and went on to work with PwC in Los Angeles as a Senior Manager leading their Financial Services team before launching into the insurance and insurtech industries. Tyson is a Certified Public Accountant. She holds a Bachelor of Science in Accountancy from Villanova University and an MBA from the UCLA Anderson School of Management.
Nurasyl Serik is the Co-Founder & CEO at Remofirst, a startup transforming global payroll and compliance for remote teams, with a mission to simplify and streamline the future of work.
Matt Wolf is the SVP of business development at Greenlight.
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.