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.
The annual report reveals that while a majority of benefit leaders view their healthcare benefits as the best possible for their workforce, they are aware that their employees may need more — and they're concerned about the rising costs.
Eric N. Mann is a partner in Neal Gerber Eisenberg's Private Wealth Services practice group. He provides gift, income and charitable planning strategies for high net worth families and business owners both domestically and internationally, and counsels on all aspects of estate and trust administration including gift and estate tax audits.
Joann Needleman is a member of the law firm Clark Hill. She leads the firm's financial services regulatory and compliance practice and advises banks, financial institutions and financial services entities on regulatory compliance matters.
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.