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.
Nola Morris is the VP of Strategy at Denim Social, leading the SaaS provider's strategy for the insurance industry. A social selling expert, Morris serves as a strategic resource for Denim Social's clients and guides the platform's future. Morris has worked in insurance and tech for more than a decade, and previously led key digital marketing programs for Nationwide and Sprinklr.
Janice Stoudemire, CPA, CGMA, ABA, ATA, currently serves as a CPA content specialist for UWorld Roger CPA Review. Reach her at jstoudemire@uworld.com.
Siddhartha Jha is the Founder, Chairman, and CEO of Arbol, an insurtech and global climate risk solutions platform. Sid is also a co-founder of dClimate, the first decentralized climate information ecosystem. Before Arbol and dClimate, he had over 13 years of experience in the financial industry, covering interest rates and commodities in quantitative research and trading roles. He launched an agriculture futures trading portfolio, managing over $100 million at a major commodity trading firm. He was the first analyst at a startup commodity hedge fund, which grew to manage over $600 million in assets. He was previously a Vice President of Interest Rates Strategy at J.P. Morgan.
Sid authored the well-received book "Interest Rate Markets," published in both English and Mandarin. He has taught financial markets at NYU and was on the board of a non-profit working with inner-city youth. Sid graduated from Harvard University with a B.A. Cum Laude in Applied Mathematics and M.A. in Statistics as part of a 4-year combined degree program.
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.