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.
John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.
John Toman is co-founder and chief product officer of Pivot Payables, a fintech company delivering corporate financial operations solutions. With a history of developing accounts payable automation and business to business payment solutions, Toman is a pioneer in applying AI, blockchain and virtual credit cards to improve financial operations. Toman writes about all things AP in his blog, "The Payables Guy."
Austin Aten, ACAS, is head of cyber pricing at Coalition, where he leads the actuarial pricing team and is responsible for designing and optimizing data-driven pricing strategies and models. Collaborating closely with Coalition's in-house, industry-leading security experts, Austin and his team have successfully crafted comprehensive cyber pricing solutions, ensuring continued effectiveness in today's ever-changing risk landscape. Before joining Coalition, Austin worked at Great American Insurance Group within the Corporate Actuarial Division. Austin has spent over 10 years in the P&C insurance industry. He graduated from the University of Cincinnati with a bachelor's degree in mathematics, statistics, and actuarial sciences.
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.