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.
Kunju Kashalikar is vice president of product management at Pentaho with deep expertise in product development, data management and AI/ML technologies. Kashalikar has a proven track record of delivering products and solutions in the hybrid cloud in data management and Edge, leveraging design thinking.
Mark Piszko, CPA, is a partner at PKF O'Connor Davies. He has nearly 40 years of experience in providing auditing and consulting services to a wide variety of not-for-profit entities, including charitable organizations, religious entities, educational and cultural institutions and social services agencies that receive government funding. He is the partner-in-charge of the firm's not-for-profit practice area and is the firm's quality assurance partner for single audits.
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.