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.
Darren Tedesco is co-founder and president of Advisor360°, a leading provider of integrated technology for wealth management firms, where he is responsible for guiding the vision of the platform, technology strategy and company direction.
He began his career at Commonwealth Financial Network in 1994, starting as a member of the finance team and transitioning to the company's technology department in 2000, where he became managing principal of innovation and strategy. He received his MBA from Bryant University and holds a B.S. from the University of Connecticut.
Tony Gonzalez is the CEO and co-founder of Mundial Media.
Michael Poveda is a partner at UHY who has over 24 years of professional experience providing accounting, assurance and advisory services to clients in various industries. He advises clients on important issues and trends impacting businesses, including complex financial reporting matters, structured transactions, risk management and performance improvement. His areas of expertise include SEC, U.S. GAAP and IFRS reporting, internal controls, risk management, corporate finance and governance.
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.