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.
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James McIntyre is the Chief Strategy Officer of Inclusive Prosperity Capital (IPC), a non-profit clean energy finance platform. Prior to IPC, James spent almost 20 years in the municipal finance industry as a banker, issuer, and technologist, most recently overseeing the $20+ billion affordable housing debt portfolio of the State of New York. James remains active in affordable housing work, now serving on the board of New York State HFA.
Jennifer Stein of Global Tax Network has more than 25 years of experience in expat and foreign national tax preparation and consulting. She joined GTN in 2011 and serves as managing director for GTN's Great Lakes region. She coaches clients to understand the complexities of sending employees across borders and helps them work through the many requirements of home and host reporting.
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.