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.
James Gilmer is a compliance specialist at Harbor Compliance, a provider of compliance solutions for companies of all types and sizes that has helped more than 25,000 organizations apply for, secure and maintain licensing across all industries. He helps nonprofit organizations leverage compliance to enhance their fundraising and program activities and educates the sector on compliance issues. He is also a co-founder of Berks Sinfonietta, Inc., a nonprofit chamber orchestra located in Reading, Pennsylvania.
Cissy Williams is Senior Vice President and Chief Customer Officer for Protective Life Corporation. In her current role, she is responsible for the strategic vision of customer experience and accountable for collaborating with enterprise-wide business owners to execute on strategy. Ms. Williams oversees operations of the annuity business, life insurance administration, licensing, contracting and compensation, and claims. In 2015, she joined our organization as Protective’s first Customer Experience leader.
Prior to joining Protective, Ms. Williams served in leadership roles in the development and delivery of operational strategies at Unum. She led strategy development and planning, enabling Unum’s three companies to leverage more enterprise assets to create and sustain business value.
Ms. Williams earned a Bachelor of Arts degree from Duke University and Master of Business Administration from Wake Forest University.
Geoff Bruskin leads the recruiting practice at StangerCarlson LLC. Reach him at geoff@stangercarlson.com or (914) 494-7358.
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.