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.
Ellen Choi is Chief Innovation Officer/Co-Founder of Aiwyn, a technology company that offers practice automation software focused on digitizing and streamlining revenue cycle processes. Her past includes working in Google' Finance team, Stanford engineering, and Harvard MBA. She is a serial entrepreneur bringing the best of Silicon Valley to the accounting profession.
Jonathan Steele is the director of product management at Motus, the mobile workforce solution simplifying the reimbursement and management of all vehicle and device costs through personalized calculations.
Allison Henry serves as the vice president of professional and technical standards at the Pennsylvania Institute of CPAs. She oversees the PICPA's peer review and ethics programs, while facilitating the operation of eight state-wide technical committees.
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.