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.
Tammy Nichols Schwartz, CPCU, is the Senior Director of Data and Analytics at Guidewire, the leading provider of technology solutions to the P&C insurance industry. She has more than 20 years of experience as an actuary, underwriter, and executive at leading insurance carriers and financial institutions including Farmers Insurance and Bank of America. Prior to Guidewire, Schwartz was the Founder and CEO of Black Swan Analytics.
Gavin Polizzo, Senior VP of North America, Cloudstaff, has over 24 years of experience, including 10 years in Executive leadership roles with global companies, such as Verizon and ADP. He is known for developing teams, increasing revenue, and creating processes to enhance the customer experience. Gavin holds an MBA from Northeastern University in Boston as well as a Bachelor of Arts degree from the University of Wisconsin in Madison.
David Smith, President at ilumivu, the company that provides healthcare decision support applications using real-time data from smartphones and standard smartwatches.
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.