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.
Cole Hallman is the founder of Citizens Life Group and an advisor at Asset Life Settlements, a licensed life settlement brokerage bound by fiduciary obligation to act in the seller's best interest. He is a licensed viatical settlement broker.
Sofia Gertsberg is managing director and head of quantitative investment science at HarbourVest Partners, a global private markets investment firm. Prior to joining HarbourVest she was the global head of fixed income and money market risk at State Street Global Advisors.
Nicole Belles is a product leader who turns complex health data into simple, trustworthy solutions. She is the chief product officer of GeneSprout, a pediatrician-founded company using genetic sequencing to improve the health of children by identifying conditions that can be treated or prevented. Throughout her over-two-decade healthcare career, Nicole has been using emerging technologies to build resilient, enduring products with measurable outcomes that address the strategic business needs of all stakeholders in the healthcare ecosystem.
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.