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.
Denise Clayton Delahanty has been a partner with Accountabilty Plus LLC for four years focusing on the people side of A&A work. Prior to working for A+, she was a principal at Gallup where she helped organizations engage their employees and customers. Clayton Delahanty's management consulting over 30-plus years helps organizations align what they say to the outside with what they are set up to deliver with the inside. She holds an MBA from Cornell University.
The Internal Revenue Service has asked all of its employees to work from home as a result of the coronavirus pandemic.
Jim Marous is an internationally recognized financial industry strategist, speaker, author and the publisher of both the Retail Banking Strategies section of The Financial Brand and the Digital Banking Report. He works with financial institutions worldwide on using customer insight and data to drive results. This includes developing innovative, multichannel solutions for acquisition, engagement, expanding share of wallet and retention. He has helped to successfully launch new products and services as well as build and reinforce existing products and brands. Jim has presented at several SourceMedia conferences in the past, has recently spoken in London, Sydney and Slovakia on innovation in banking and is a regular contributor and recent guest host for the Breaking Banks�broadcast hosted by Brett King.He can be followed on Twitter and LinkedIn.
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.