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.
Dr. Sangeeta Chhabra, co-founder and director of Ace Cloud Hosting, is an entrepreneur with more than 20 years of experience in the IT sector. She has positioned the company as a global provider of IT and managed cloud services, with its QuickBooks hosting tailored for the accounting sector, as well as its Managed Security Services and public cloud offerings for SMBs and enterprises.
Karen Monks is a Principal Analyst in Celent's North American insurance practice. She brings a broad range of insurance and consulting experience to her work; she has worked as a management consultant to and within insurance carriers and other financial services companies for over 25 years.
Karen's focus is life insurance technology and trends. Her research concentrates on life, all aspects of life insurance processing including illustrations, eApplications and eSignature, new business and underwriting systems, policy administration systems, claims systems, and digital enablement technologies. Her consulting experience at Celent includes new business and underwriting system selections, policy administration system selections, distribution management system selections, vendor product strategy reviews, a life claims system benchmarking project, eApplication and automated underwriting cost analyses, plus several small life insurance technology analyses. Karen led Celent's Knowledge Management team for seven years. The KMC supports Celent's vendor assessments across all practices and helps manage vendor data on Celent's online platform, VendorMatch. She helped build out Celent's VendorMatch Digital Services Platform.
Mary Mulcare, MD, FACEP, is the Chief Medical Officer at Summus and oversees all clinical aspects of operations. Mary also serves as a Clinical Assistant Professor of Emergency Medicine at NewYork-Presbyterian/Weill Cornell Medicine, and has held several leadership roles at Weill Cornell, including Director of Undergraduate Medical Education in the Department of Emergency Medicine and Assistant Director of the Margaret and Ian Smith Clinical Skills Center.
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.