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.
Brandon Chandler is an audit and assurance partner at Deloitte & Touche LLP. As the leader within the accounting advisory & transformation services practice in Atlanta/Birmingham, he oversees all aspects of the Atlanta/Birmingham AATS practice including quality, innovation, growth and talent strategies.
Lindsay Rosenfeld is an audit and assurance partner at Deloitte & Touche LLP. As the national market offering leader for governance, risk, and controls within Deloitte's accounting & reporting advisory practice, she specializes in SOX readiness and the modernization of SOX and internal control programs. She also assists companies in implementing technology solutions to manage these programs effectively.
Andrew Zea is a Capco consultant based in Chicago IL, with three years of technology experience in software implementation and product management. Andrew's focus is creating efficiencies by streamlining processes, developing innovative technologies, and mapping new ways to use data to drive results. He has experience leading global agile teams and truly enjoys delivering outcomes across a wide variety of domains and functions. He remains continuously passionate about leading edge trends across technology, data, and customer experience.
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.