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.
Shannon Irwin provides clients with concierge level services as related to the Synergy process for financial planning and portfolio management. She has worked with banks and brokerages in varying capacities over her career.
Renee Schroder works with clients on back office operations at Synergy Financial Group and supports in managing client relationships. She processes client information and manages ongoing client projects.
Baruch Lev is the Philip Bardes Professor of Accounting and Finance at New York University Stern School of Business, where he teaches courses in accounting, financial analysis and investor relations. Professor Lev has been with NYU over 20 years. His primary research areas of interest include financial statement and investment analyses; intangible assets/intellectual capital; management and valuation; capital markets; and mergers and acquisitions. He is the author of six books including "Intangibles: Management, Measurement, and Reporting," "Winning Investors Over" and, most recently, "The End of Accounting and the Path Forward for Investors and Managers." Lev has published over 120 research studies in the leading accounting, finance and economic journals and received numerous awards and honorary doctorates. Before joining NYU, he held academic positions at the University of Chicago, the Hebrew University of Jerusalem, Tel Aviv University, where he was dean of the business school, and University of California at Berkeley (jointly appointed by the business and law schools). Lev's practical experience includes auditing, and investment banking. He was also a partner for over 15 years in a consulting firm.
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.