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.
Ori Faran is co-founder and CEO of Callvu. After serving as an engineer and professional services manager at Cosmocom and Enghouse Interactive, he founded Callvu in 2012 to help companies build easy-to-use digital experiences that automate customer service through seamless self-serve and agent-led interactions.
Lynn Gallin is the Vice President of Product Marketing at Rightworks, where she leads the strategy and execution of marketing initiatives to deliver innovative solutions for accounting professionals.
Prior to joining Rightworks, Lynn advised numerous leading companies on product strategy and managed extensive marketing research projects focused on branding, positioning, pricing, and communication effectiveness. She has over 20 years of experience in the B2B tech industry, including serving as Vice President of Corporate Partnership Marketing at Southern New Hampshire University in addition to marketing leadership positions at Skillsoft and Newforma. Lynn also successfully ran a market research consulting practice, advising high-tech companies like Microsoft, Yahoo!, and Autodesk.
Cindy Dash is the senior vice president and general manager for Broadridge's Retirement and Workplace division.
Prior to that she was the COO of Matrix, where she successfully led the integration into Broadridge. Prior to her role as COO of Matrix, Dash was general counsel for that firm for more than 10 years.
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.