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.
Anthony Macciola is chief innovation officer at North Carolina-based ABBYY, a global digital intelligence company. He holds more than 45 patents for technologies in mobility, text analytics, image processing, and process automation and is leading AI initiatives at ABBYY.
Marc Staut is chief innovation and technology officer at Boomer Consulting Inc.
Justin Turner is VP of Strategic Partnerships - Shipping (Global) at Cover Genius, the insurtech for embedded insurance that protects the global customers of the world’s largest digital companies including Booking Holdings, Descartes ShipRush and Intuit. XCover is also available at Amazon, eBay, and Shopee. In his role, Justin is responsible for leading and executing the company’s logistics strategy and creating value for partners by delivering a seamless insurance experience for their customers. Prior to Cover Genius, Justin was the Asia Pacific Head of Sales and Operational Marketing at Neopost Shipping and the Regional Chief Executive of global logistics companies Pacific Network and GP Logistics where he was responsible for leading the sales and operation teams and executing the company’s strategic direction. Justin has an executive MBA from RMIT University and dedicates time to volunteer as Vice President of his local community football club and as a contributor to the Surf Lifesaving Association.
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.