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.
Arad Levertov is the CEO and co-founder of Sunbit, which offers BNPL services for in-person transactions as well as a branded credit card.
Ron is a tech entrepreneur who has brought his love for developing empowering products to startups and major international corporations alike. He is the Co-Founder & CEO of Empathy, the world's leading support system for navigating loss. Before launching Empathy in 2020, Ron held roles as a Product Executive at WeWork and eBay. He initially joined eBay after the acquisition of The Gifts Project in 2011, a social-commerce startup where he served as Co-Founder & CEO.
Shara has spent more than 20 years helping healthcare organizations think differently about how to involve and empower people more effectively in their care and health. She continues in that work as CEO of Carallel, the leading provider of holistic support, guidance and assistance for family caregivers.
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.