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.
Brad Bolton is president and CEO of Community Spirit Bank in Red Bay, Alabama, and chairman of the Independent Community Bankers of America.
Christopher Ewing is the founder and Chief Strategy Officer of One Inc. A long time entrepreneur raised in Sacramento, CA, Christopher has a proven track-record building effective teams and partnerships to deliver innovative solutions to customers.
Christopher began his insurance industry career in 2003 as the President and CEO of Keenan Holdings. He also served as the CTO and General Counsel of Cost-U-Less Insurance Center, growing the company from 32 locations to more than 100. Chris was also the Co-Founder, President, and CEO of Stonewood Insurance Services, Co-Founder and CTO of ClearSide General Insurance Services, and Co-Founder, General Counsel, and Executive VP of GreenPath Insurance Company.
Christopher received his Bachelor's degree in Business Administration from the University of California, Riverside, and his Juris Doctor from University of the Pacific McGeorge School of Law.
Mark Snyder is the principal consultant and claims subject matter expert at Hi Marley.
He is a proven leader and P&C insurance claims optimization expert with significant experience in quality management program design, insurtech and digital strategy operationalization, operational transformation, project management and training development and delivery.
Mark also has deep claims technical handling, management and auditing knowledge and skills across all major lines of business and select specialty lines.He previously held leadership positions with Ohio Casualty, Liberty Mutual, Athenium Analytics and Aon Inpoint.
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.