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.
Kurt Gresens is the CEO of Wipfli. He is responsible for the firm's vision, strategy, leadership, growth and overall performance. He also ensures that the culture and values of the firm are maintained and enhanced.
Rich Berner is the CEO of Blueberry Pediatrics and a career-long innovator working at the intersection of healthcare and technology. He brings more than twenty years of leadership experience focused on expanding access to care, improving population health, and reducing the cost of care delivery for payers. Blueberry is a national provider of virtual pediatric care that partners with employers, commercial health plans, Medicaid managed care organizations, hospitals, health systems, and families.
Perry Revell is the CEO of AB&T Bank.
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.