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.
A Bentley University graduate, Garrett Stenhouse is a CPA and a Manager in the A&A department at DiSanto, Priest & Co. in Rhode Island. With 9+ years of experience, Garrett specializes in auditing manufacturers and in audits involving precious metals. He is a member of both the AICPA and RISCPA, and in 2018 was a graduate of the AICPA’s Leadership Academy.
Carl Mayes is the Senior Technical Manager – Special Projects on the Public Practice and Global Alliances team at the American Institute of Certified Public Accountants (AICPA). He is responsible for managing practice quality initiatives for the AICPA including regulator quality studies, practice monitoring and various technical and regulatory-focused projects. He is the project manager for the AICPA’s Enhancing Audit Quality initiative and manages the execution of the AICPA’s 6-Point Plan to Improve Audits.
Prior to joining the Public Practice and Global Alliances team, Mayes helped perform market research, develop the business plan and identify the membership model for the AICPA Not-for-Profit Section.
Patrick Tokarski is a Product Manager for the Accounting and Audit Solutions. He has been with Wolters Kluwer since 2016. Prior to joining the product management team, he worked as an A&A Software Consultant helping firms become more productive by conducting training and consulting on various CCH® ProSystem fx® products including Engagement, Knowledge Coach and TeamMate Analytics® among others. Patrick also delivers multiple CCH® Learning and Development Academy School of Audit programs such as Knowledge-Based Audit (KBA) Methodology and role-based programs.
Patrick is a CPA and worked in public accounting as an auditor for seven years. In addition, he spent 8 years in the professional standards group of a national firm. He has also worked in private industry accounting as a controller and consultant helping to implement software and process changes.
Patrick received his Bachelor’s degree in Accounting from the University of Wisconsin – La Crosse. Patrick currently resides in Madison, Wisconsin.
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.