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.
Christina Robbins is director of strategic communications at Digitech Systems LLC with more than 20 years of information management marketing leadership experience.
Cole Winans is the CEO and founder of Flyreel, an AI solution for residential and commercial property insurance carriers. Winans is a self-taught technologist and entrepreneur that launched and sold his first technology business at age 14. Prior to Flyreel, Cole developed and deployed over 100 successful enterprise and consumer software products and applications. Cole’s expertise extends into Mobile Technology, Artificial Intelligence, Computer Vision and Cloud Application development.
Nate Brown is Vice President, Product Management for Firm Management at Wolters Kluwer Tax & Accounting North America responsible for the development and delivery of firm management solutions. Nate has been working directly with firms to transform their businesses from desktop to cloud-based solutions through product management, sales and consulting roles. He is a sought-after speaker and a coach for firms to improve workflow and data to support decision-making. Prior to joining Wolters Kluwer, Nate worked for a large regional CPA firm as well as held accounting roles at a Fortune 500 company.
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.