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.
Rob Chrane is the CEO of Down Payment Resource
Molly Boesel holds the position of principal, economist in the Office of the Chief Economist at CoreLogic. She is responsible for analyzing and forecasting housing and mortgage market trends. She has a depth of expertise in mortgage market analysis, model development and risk analysis in the housing finance industry.
Boesel previously worked at both Fannie Mae and Freddie Mac. While at Fannie Mae she provided Fannie Mae’s official monthly forecast for the economy, housing market, and mortgage market stocks and flows, and provided analyses on trends in the mortgage market, including characteristics of borrowers, homeowners, and mortgage products. She earned her bachelor’s degree in economics from James Madison University and her master’s degree in consumer economics and housing from Cornell University.
Paul Henderson is the global controller at Tipalti, a payment automation software that helps businesses manage their entire supplier payments operations by streamlining all phases of the AP and payment management workflow in one holistic cloud platform. He has decades of experience in the financial industry across a variety of companies, and prior to Tipalti, he served as vice president and controller at ForgeRock.
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.