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.
Jeffery Mayger is a cybersecurity consultant with industry engagements including utilities, oil/gas, defense and financial services organizations. He has over 20 years of experience and has held senior leadership positions including Chief Information Security Officer (CISO) for global mining company Sibelco. His Information Security background includes designations as Certified Information Security Professional (CISSP), Certified SCADA Security Architect (CSSA), and Payment Card Industry Professional (PCIP).
Chris Andrew is a counter fraud subject matter expert at Mind Foundry. He brings over 20 years of financial services experience delivering AI and analytics-based solutions in fraud, financial crime and automation across the insurance and banking industries. Chris works with insurance clients to deliver state-of-the-art AI solutions that help tackle high-stakes problems, focusing on human outcomes and the long-term impact of AI interventions.
Virág Blazsek is a lecturer in commercial, corporate and banking law, University of Leeds School of Law, Leeds, United Kingdom.
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.