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.
Keely Wilkins is the Global Program Manager for Insurance Partnerships, and an Evangelist with the Office of the CTO at Check Point Software Technologies. She has nearly 30 years of experience in technology and cybersecurity. Keely is active in global initiatives like the World Economic Forum's Partnership Against Cybercrime and frequently speaks on AI, cyber insurance, and cyber risk management. She holds a MS in Cybersecurity and an MLS in Cybersecurity Law and Policy.
Jen Cressman is the chief commercial officer at Form Health, the national leader in science-based obesity care.
Jen is a veteran of the healthcare industry, building and leading exceptional sales teams at dynamic, innovative companies. Jen has been leading Form Health through rapid commercial growth since May 2023, focusing on leveraging the physician-led, science-based obesity care model to guide clients through the challenges and opportunities of GLP-1s.
Nishaad Ruparel is the president of Ascend, a Top 50 Firm formed in 2023 with capital from Alpine Investors, a private equity firm based in San Francisco. Prior to joining Ascend, he was recruited by Alpine Investors to help launch a new investment strategy; prior to joining Alpine, he spent time at AEA, an upper middle market PE firm based in New York, and at JP Morgan, where he serviced private equity clients out of the firm's investment banking division. He holds an MBA from Stanford University and a BS in Finance from New York University's Stern School of Business.
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.