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.
Ramanan Seshadri manages the professional services business unit for Orion Innovation, where he is responsible for accelerating business growth, client delight, and competency development. He is a global software services leader with an impressive and diverse 25-year track record from individual contributor to leading teams, turning markets and doing business in tough scenarios. He spent more than 12 years in Hexaware Technologies where he held various roles and became a member of the Management Council. As well as managing one of the largest relationships for Hexaware, he also acted as head of the Europe region, and led the health care and insurance verticals. Prior to joining Orion, he held leadership roles in Citiustech and Iris Software. He has a degree in Electronics and Communication Engineering from Madras University and a certificate from the Harvard T.H. Chan School of Public Health.
Chris McMahon was Senior Editor for Insurance Networking News.
David Van Bruwaene is a purpose-driven serial entrepreneur, philosopher, and educator; a leader in consumer and business strategy for ethical technologies. He is the founder and CEO of FAIRLY, a governance, risk, and compliance solution built to help businesses accelerate responsible AI models to market. Through FAIRLY, Van Bruwaene is working to promote and protect human rights at a time of growing concern of AI model development. With academic roots in Cognitive Science and Philosophy at Cornell University, David has academic relationships at UC Berkeley, the University of Ottawa, the University of Waterloo, and the University of Guelph.
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.