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.
Suzanne McCall is a learning and development consultant with Pinnacle Group Business Resources.
Donna Stephens is a managing director at Deloitte Tax LLP. She joined Deloitte in November 2020 as managing director with over 26 years of experience serving clients across various industries. Prior to joining Deloitte, she was senior director of operations and chief of staff for tax, FP&A and global functions finance for a Fortune 500 technology company. She specializes in global tax compliance and has designed and built several global centers of excellence.
At Active Digital, David drives and oversees the company's go-to-market motions, client partnership and success motions, solution and delivery capabilities, and thought-leadership efforts. He also ensures corporate operations and talent alignment with the needs and pace of Active's growth and delivery orgs. Beyond his internal business leadership, David loves to invest time in strategic client relationships and projects.
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.