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.
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Shan Haq is vice president of corporate strategy and development at Transcepta, a cloud-based AP automation platform. Haq is responsible for shaping Transcepta's strategy for new markets, products and alliances. Through leadership roles in corporate strategy, marketing and product management, Haq has successfully grown businesses within Microsoft, Deloitte Consulting and Boeing Space and Technology.
Rama Sreenivasan is co-founder and CEO of Blitzz, a live, app-free remote video support and inspection platform. Sreenivasan has led the company through its initial inception, launch, and subsequent growth to several million video support minutes per month. Major customers include BMW, Sealy, Fedex, and Rogers telecommunications.
Before founding Blitzz in 2017, Rama spent several years working as a scientist and educator. His biggest joy comes from helping others solve their problems and he is passionate about finding effective ways to disseminate knowledge. Sreenivasan has a PhD and MS in chemical engineering from the University of Maryland, College Park. He also did his post doctoral research at MIT in Cambridge, Boston.
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.