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.
René Lacerte is the CEO and founder of Bill.com. Prior to launching Bill.com in 2006, he co-founded online payroll service provider PayCycle in 1999, which was acquired by Intuit in 2009. Lacerte also spent five years at Intuit, creating and managing the company's bill presentment team and growing its bill payment and credit card offerings into multi-million dollar businesses for the company. He also launched Intuit's first connected payroll product, growing the team from two employees to 300 in 18 months.
Michael Parrinello is a partner and practice leader of Bonadio Advisory at The Bonadio Group. As the leader of the firm’s Bonadio Advisory Practice, which offers strategic consulting services from analysis to execution, driving profitability, increasing efficiencies, mitigating risk and improving operations, he works closely with clients to evaluate opportunities and achieve their strategic goals by delivering value-added solutions.
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.