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.
Bobby Puglia is chief product officer at Bloomberg Industry Group, where he oversees Bloomberg Law, Bloomberg Tax, and Bloomberg Government. Prior to his current role, he served as architect of Bloomberg Law's data platform, leading the strategy and development of its proprietary legal search engine, as well as the machine learning and artificial intelligence research and engineering organizations that support Bloomberg Industry Group's products.
Blaine Frederick is VP of Product at Alcatraz AI, an artificial intelligence company that employs facial authentication technology to create autonomous access control solutions for enterprises. Frederick brings 20+ years of experience in the Physical Security industry with specific expertise in the Biometric space. Frederick currently serves as the VP of Product at Alcatraz AI where he leads the Product and Engineering teams. Prior to his work at Alcatraz AI, he served as Co-Founder and Principal of BDIS which provides Consultation and Professional Services for the physical security market. Previously, Frederick held the role of VP of Product for EyeLock, where he captained the firm's vision for iris authentication products and solutions in physical and logical security as well as numerous other commercial applications. Frederick also acted as the former Director of Product Management at STANLEY Security, a global division of Stanley Black & Decker where he led the creation of an industry-leading security management software suite, Commander. He received a B.S. in Electrical Engineering from Purdue University.
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.