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.
Greg Zolkos is president and CEO of Atlas Professional Services, a Tampa, Florida-based IT support services provider. Reach him at gzolkos@atlasps.com and (813) 999-4499.
Wendy Walker, vice president of regulatory affairs at Sovos, uses her market expertise to create and implement product and solution strategies that help customers meet the demands of a constantly changing regulatory environment. Since joining Sovos, she has helped lead the go-to-market strategy focused on growing the tax and regulatory reporting line of business.
Paul Statham is the CEO and Founder of Condeco, where he has helped to shape the relationship between real estate and technology with one of the foremost providers of workspace management technology. He was previously Managing Director of one of the UK’s largest electronic security companies.
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.